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Kerry K. Taylor:Hey, I’m Kerry Taylor, and welcome to another episode of SquawkfoxTV and the Cash and Kerry podcast, so look, over the last several months, our lives and behaviors have changed dramatically during this pandemic, and it’s transformed our financial lives too, leaving many of us wondering how to save, spend, and invest in the future, so if you’re feeling a little or a lot of financial anxiety, you’re not alone, and this show is for you. My next guest uses the power of optimism, the gift of humor, and the science of behavioral economics to help us improve our finances, starting today.
Dan Ariely is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University. He’s a world-leading behavioral economist, a renowned TED speaker, a multiple “New York Times” bestselling author, and he’s the chief behavioral economist at Qapital, so he’s uniquely positioned to give us some behavioral insight on how to best manage our money during these challenging times.
He’s joining us from Israel. It’s great to meet you, Dan.
Dan Ariely:Same here. Lovely to be here, and it’s a Friday night here, so I have a glass of wine. I don’t know what you’re drinking, but for me it’s evening. It’s already okay.
Kerry K. Taylor:Oh, I approve. So I have a couple of your books here.
Dan Ariely:Wow. Okay.
Kerry K. Taylor:If you keep writing at this pace, I may need a bigger house.
Dan Ariely:Wow. That’s very sweet.
Kerry K. Taylor:I’ve noticed you’ve done a lot of interviews while you’re in Israel, and I’ve seen you do a lot of speeches as well, and you often explain why you have half a beard.
Dan Ariely:Yes, that’s a very good point, and when I don’t explain half a beard, I know that people wait to the point, like, what’s the point of this half a beard? When are we going to discover what’s the point? So there’s no point. As you know, many years ago I was badly burned. Most of my body is covered with scars, my hands, most of my body. I was burned in about 70% of my body. I spent almost three years in hospital. It was a very dark, difficult, complex period, but as a consequence, I have scars on the right side of my face, so it looks sort of symmetrical, but it’s just because how the explosion happened. But a few years ago I went on a hike for a month, and I emerged like this with half a beard, and I decided to accept myself.
Kerry K. Taylor:This time last year I was in treatment for breast cancer, so I went through chemotherapy, and at this time last year I’d shed my entire coat, so it was unpleasant having no hair on my head, but the worst was actually not having eyebrows or eyelashes because people found it difficult to communicate with you ’cause you can’t express yourself, so I understand how people relate. It’s a challenge, but-
Dan Ariely:Yeah, but you’re back with eyebrows, so I hope your health is doing well?
Kerry K. Taylor:Yes, I’m doing well.
Okay, let’s talk a bit about behavioral economics.
Dan Ariely:Happier things. Let’s talk about behavioral economics.
Kerry K. Taylor:Enough. Okay, so let’s improve our financial decisions, and I think it would help to know, if we’re gonna talk about how behavioral economics plays into this, what the difference between behavioral economics is, and how is it different from standard economics?
Dan Ariely:So there’s lots of ways to think about it, but I think about it in two ways. The first one is that standard economics assumes lots of things. We assume that people are rational. We assume people can think about everything. People can know anything. We have infinite computational power. We can think into the future. We have no emotions, all kind of assumptions. Behavioral economics doesn’t assume anything. It just says let’s test things, right?
And the second thing is that it’s more of a science than religion in the following sense, that the standard science, it doesn’t start with assumptions. Economics does, but if you talk about biology, there’s no assumptions: all creatures are rational. We’re just saying we’re open to data, and from that perspective, behavioral economics is just open to data. It’s perfectly fine if people behave rationally. It’s perfectly fine if they’re not. We have no horse in the game, but we just want to see what people do, and why is that important? It’s important because social science is not just what’s called descriptive. It’s not just describing reality. It’s also prescriptive. It’s also tell us how to build the world, so imagine that you want to build, to give instructions of how to get people not to, to wear a mask, and wash their hands, and keep social distancing.
A standard economist will say it’s a very, very simple thing to do. Just tell people what to do. Give them the probability, and they’ll do it. A social scientist, a behavioral economist, will say not so easy. One of the challenges is that every time you see a person who’s not wearing a mask, that person is much more salient to you than the people who are wearing a mask, and you have a hard time going to somebody and say, “Could you please put a mask on?”
I was in Eastern Europe at the beginning of the year, and somebody picked me up from the airport. Picked me up, I sit next to him, and I put my seatbelt on, and he says, “Why do you put your seatbelt on? Don’t you trust me?” And first of all, I don’t trust him, but didn’t know him, but it was interesting to how he took that as a sign of offense. Now, imagine that you’re walking in the street, and you tell to somebody, “Could you please put a mask on?” It’s a very difficult thing, right? It’s as if you’re telling somebody, “I think you’re contaminated in some way,” so once you understand all these nuances, you’re much, much better able to design something better, so standard economics makes some very simplified assumptions.
Behavioral economics doesn’t make any assumption. We’re trying to learn what people actually do, and then the second thing is when we’re trying to build something in the world, I prefer the behavioral economics perspective because now you are informed, like you’re building a bridge, you’re building a hospital, you’re building a school, you’re building instructions, whatever it is that you’re building, you take human nature into account just making assumptions about it.
Kerry K. Taylor:I love it. I love behavioral science because, well, specifically with money because so many people struggle with money and behavioral science explains that the struggle is real, right? Like we make these mistakes for some very explainable reasons, and standard economics kind of ignores it, so if I give someone a budget spreadsheet or a compound interest calculator and assume they’ve got it all figured out, they’ll master their money, they don’t. There’s so much more involved. There’s so much more psychology involved, and it just-
Dan Ariely:That’s right.
Kerry K. Taylor:I feel-
Dan Ariely:It’s actually-
Kerry K. Taylor:I feel like.
It helps.
Dan Ariely:Yeah, it’s actually worse. It’s actually worse because in standard economics you don’t have to give anybody a compound calculator. They’re supposed to just intuit that because that’s how interest compounds, and you’re supposed to be able to figure it out, so you’re supposed to say, “Oh, I have this glass of wine here. The opportunity cost with compound interest over the next 20 years is so and so. Let me not get this wine,” but of course it’s impossible, and we don’t think like this, and therefore we often get into lots of trouble financially, and the other thing that happened is that in the financial world, like in nature, the orange tree is not your enemy. It’s just an orange tree, but in the market we have competition, so for example, most banks want us to overspend, right? They make money, the most amount of money they make over people who are revolving their credit, so their interest is to create lots of people who revolve their credit, still pay it, but revolve their credit and pay high interest rate, and they can do things, right? They are an interested party, and they can do things to make it more difficult for us to understand what the consequences of our actions are and therefore take advantage of us, so it’s not only that we’re naturally not inclined to deal with money. Most of the institutions out there are not designed to help us. They are designed to take advantage of us. It’s a competitive system.
Kerry K. Taylor:Yes. For sure. I mean, and a lot of the old-school writing with money also tells people, “Use your willpower. “Use self-control; you’ll save more money,” and that advice doesn’t really help. Even when you have logical tools, the willpower thing just fails every time.
Dan Ariely:Willpower is very tough, right? If the instruction is use your willpower all the time, that’s not a recipe for help, right? If I say to-
Kerry K. Taylor:It’s exhausting.
Dan Ariely:It’s exhausting. That’s right, and you don’t have to fail a lot to fail, right? So imagine that we filled your home with doughnuts and cookies, all kinds of things, and chocolate, and great smells. Will you fail 100% of the time? Of course not, but will you fail from time to time? Absolutely, and what you’re saying about exhaustion is also true, is we call this depleting. As you react to temptation, like you see a doughnut and you say, “No,” and you see a cookie and you say, “No,” it eats at your willpower, and at some point you get exhausted, and you’re more likely to fail, so we have an environment that is set up to tempt us, and we have to figure out how do we fight that? And the answer of just learn how to control yourself is not enough.
I’m really curious about the Dalai Lama, right? Here’s a guy who is clearly practicing eight hours a day for self-control, and I met him once, and I wanted to do some experiments with his monks. He was not interested, but this would have been great because normal people, like you and me, we haven’t really practiced that much self-control. These guys have practiced a lot, right? And presumably we can test are they more successful? And in what way, in what tasks, and so on, but the idea of just resist it is not is not a good instruction.
A much better instruction is to eliminate temptation, so think about something like automatic deductions. If your paycheck goes into your bank account, and it stays in your checking account until you decide to put it into savings, there’ll not be much savings. If we take a part of it, and we automatically move it into a savings account, savings will accumulate without your actions. Basically, if we wait for people to take the right action all the time, there’ll be too many times that we’ll fail, so we want to take things, automated things, and by way, what’s wonderful about money is that money’s digital now, right? So imagine we were stuck in a world in which we only had physical paper money. People got their paycheck in cash, and we had to deal with everything. We couldn’t automate anything.
The fact that money moved into digital provides both opportunities and danger, and what’s the danger? The danger is things like the Amazon Shop where you go into a store, you take things off the shelf, and then they charge you a month later. You don’t even see the money, right? And under those conditions, people don’t think about money, and they overspend. On the other hand, we could do things that you could think better about money, so as long as we had physical money, we were very limited. Now that we have electronic money, we can decide what we want to do. We can decide to create payment methods that get people to think more deeply or think less deeply. Now, I’m personally hoping it will get people to think more deeply and make better decisions, and-
Kerry K. Taylor:Well, I have a question about the cashless world. I’ve ventured out of my house in the last little while, ’cause retailers are now opened, and I’ve noticed something new is that a lot of them have signs that say cash not accepted. We no longer accept cash. They want contactless payments, so credit card tap, mobile wallets, and I know you’ve written a lot about how using cash can reduce spending because it’s painful, right? It doesn’t feel good to hand over money. Well, why is cash so painful? And what could it mean if we’re moving into a cashless world now?
Dan Ariely:Yeah, so basically, the story with cash is what is called the pain of paying, and of course it’s not physical pain, but it’s mental pain, and kind of just as a thought exercise, you can say, “How would it feel like if you went to a restaurant, and every time we took a bite, they charged you a dollar.” Imagine a steak is $25 on average. It’s 25 bites. You could say what would happen if every time you took a bite, somebody would make a note and then charge you a dollar for it? It would be very painful because the thing is that when we think about the money, our enjoyment goes down, right?
And that’s the pain of paying. It’s about thinking about money, and what credit cards do is they get us not to think about money because we don’t feel that we’re paying; we’re swiping. We don’t see the money leaving. Most of us, when we get a credit card statement end of the month, we’re surprised by the amount. It’s because we haven’t really thought about all the things that go into it. They don’t really register that much, so the pain of paying is really thinking about the opportunity cost, so if I gave you an amount of money, let’s say $100 a day to spend, you would see what’s going on. You would see that if you buy a huge lunch, you might not have money for rent or something like that if you got money every day for just a day. If you get a credit card, part of the way it works is we don’t think about how much we’re spending. We just spend, spend, spend. We don’t see the opportunity cost. We don’t see what we’re giving up in the process, so there’s no question in my mind that moving to more digital is going to get people to spend more.
Now, there is a solution for that-
Kerry K. Taylor:Yes, I like solutions.
Dan Ariely:and the solution, the solution is the prepaid debit, right? So it’s true that credit card is a mechanism to get people to spend more, but prepaid debit is better, and you mentioned Qapital earlier, and Qapital, they have a version of a prepaid debit card, so I have one of those, and it loads money onto my account, and then I see it going down, and right? The moment you see something going down, zero is very clear.
Kerry K. Taylor:My heart rate.
Dan Ariely:Yeah, that’s right. If the amount is going up, how much is it going, and what’s the end? It’s not clear. If it’s going down, zero is very, very clear. The second thing we did was we found out that it’s much better to have this budget load weekly rather than monthly. Why? In my personal case, I use it for discretionary spending. That’s what it’s supposed to be used for, and I load $2,000 a month, but it turns out that if you load $2,000 a month, and you check it, you say, “Oh my goodness, I’m rich,” In the beginning, it looks like I have so much money for discretionary spending. People spend it too fast. If instead, you break it into $500 a week, that’s much better.
And there’s another trick. Do you load the card on Monday or on Friday?
Kerry K. Taylor:Oh, you want me to guess?
Dan Ariely:Yes.
Kerry K. Taylor:I’m gonna say Monday.
Dan Ariely:You’re right.
Kerry K. Taylor:‘Cause the weekend, I’d wanna spend.
Dan Ariely:That’s right, that’s right, so if you load on the weekend, on Friday, you spend a lot, right? You have more time on the weekend. You have more things to do. Actually, people think about, there’s a question in retirement: how much money do you need in retirement? And people say, “Oh, 70% of my assets,” but the reality is that we did this exercise. We didn’t ask people, “How much money do you need in retirement?” We asked people, “Tell us how you want to live at retirement?” and then we calculate how much money they need, and they need about 120%.
Why? Because retirement is like the weekend. Actually, working is very cheap. Somebody occupies you for eight hours a day and gives you free coffee. It’s an amazing deal. If you didn’t have that time, you have to find expensive thing, I mean, not very expensive, but you have to fill your time with something, so if it’s on Friday, then it’s very, very expensive. People spend way too much.
If it’s on Monday, you get to savor and wait for the weekend, and if you miss the weekend, the weekend is easy to scale up and down, so if you think about this version of a debit card, you can say how, instead of working like a credit card, getting you to overspend, it gets you to set your goals and live in a way that is closer to your goal, and actually, better than cash, right? Because imagine that you did a substitute. You had $500 in cash in an envelope, right? That’s a good solution because you would see it going down, but you wouldn’t know how much you had. You would have to recount it all the time, so there are benefits of electronic money. I don’t think it’s always bad, but we have to decide is the technology going to fit with human nature and help? Or is it going to be antagonistic and try to take advantage?
Kerry K. Taylor:I’m a bit of a pessimist. I feel like a lot of these new technologies are taking advantage.
Dan Ariely:You’re absolutely right, so first of all, you’re absolutely right. There’s lots of attempts to, for people to take advantage, but I don’t think, I’m not of a, as a pessimist as you are, because I think a lot of it, and this is kind of a individual perspective, I think a lot of it comes from stupidity rather than evil, and I think that a lot of, even credit card companies, haven’t thought very carefully about what it is that they are doing, so I think, yes, there’s some wishful thinking and some not paying attention.
I’ll tell you another story. Very different era. A few years ago, a couple of entrepreneurs came to me, and they said that they want to do a digital insurance company. I said, “Great,” and they asked me if I want to join them, and I said, “Absolutely not. “I don’t see a reason to join the insurance company,” and then they said, “What could we do to make it interesting for you?” My answer was, “What if it was an insurance company with no conflicts of interest?”
Kerry K. Taylor:Okay, so Dan is gonna be modest about this insurance company.
It’s called Lemonade, and with Lemonade he’s completely made over and changed the adversarial relationship with buying insurance and making claims. Lemonade is the world’s first peer-to-peer insurance carrier, so funds contributed by members are shared communally. Now, last summer Lemonade went public and grew beyond a small pop stand with more than 140% gain, I’ll link to Lemonade in the show notes below.
Dan Ariely:With a regular insurance company, you have the consumers, you have the insurance company, and consumers pay, pay, pay, pay. At some point something bad happens, they want the insurance company to pay them back, and what does the insurance company want to do? Not to pay back. It’s very simple, right? It’s a zero-sum game. There’s a pie. The insurance company holds all the pie, and every money, every dollar they give away back, they have less.
It’s a conflict of interest, and consumers know that the insurance company doesn’t want to pay them back, so they exaggerate. You lost a cheap watch; you say it was an expensive watch, and the insurance company know that people exaggerate, so they make it difficult, and complex, and painful.
Kerry K. Taylor:It’s a strange dance.
Dan Ariely:It’s a strange dance, and it’s not the way you would design it. Now, I don’t think it’s evil. I think it was just designed in a non-thoughtful way, so I said, “What if we decided to fix it?” So they said, “How?” I said, “What if, instead of a two-party game, we made a three-party game?” You have consumers, you have the insurance company, and you have a charity, and when people join this insurance company, they pick the charity they love the most in the whole wide world, so maybe it’s the World Wildlife Fund, and they pay, and the insurance company takes a fixed amount, let’s say 20%. Their management is 20% of that. They put it aside, and they have a pool for all the people who join under the World Wildlife Fund, and they pay people from the pool, and the end of the year, there’s money in the pool.
The money doesn’t go to the insurance company. It goes to the charity. Now, what it does is it makes the insurance company have no conflicts of interest. We always make 20%. There are more claims. There are less claims. We are indifferent to that. It’s all the way the money is divided between consumers and the non-for-profits, and if consumers cheat us, who are they cheating? The non-for-profits ’cause we always take 20%.
So we started this company five, about five years ago, and lots of good things happened, and in particular, about two weeks after we started, we got the first interesting e-mail from somebody, and he said, “I insured my apartment with you. I reported a theft. My laptop was stolen. You paid me. Thank you, but I just realize that nobody stole my laptop. I just misplaced it,” and he said, “How do I return the money?” Now, on that day, I called all my friends in all kinds of big insurance companies, and I asked them, “How does the form look like when people pay you back?” Guess what? They don’t have a form.
Kerry K. Taylor:It’s never happened before.
Dan Ariely:That’s right. It doesn’t happen. They don’t need, and we get these things happening from time to time. By the way, this company is doing well. Last week we had an IPO.
Kerry K. Taylor:I saw. Lemonade.
Dan Ariely:Yeah, yeah, so we’re very happy with that, and part of it is I’m happy. Insurance is an important product, and so on, but part of it is your pessimism, right? Partially, for me, Lemonade is so important because it shows that you can be on consumers’ side, right? This notion of an antagonistic financial service companies that are trying to squeeze everything out of consumers rather than provide services that are helpful, important, and so on, and make, I mean, everybody should make a decent living, but there’s no reason to get into conflicts of interest or abusive relationships, so I’m hopeful, and Lemonade, for me, is a good example of how you basically say, “Let’s change the rules of the game”.
And next, if you ask me what’s my wishlist, I want a bank. I want a bank that does the same thing, but I want a bank that says, “We’re on your side as a consumer, and we’re not going to be any conflicts of interest, and we’re only going to serve you, and we’ll charge for it,” which is fine, but will not be any conflicts of interest.
Kerry K. Taylor:Right, well, why don’t I just skip ahead and ask you about Qapital now? ‘Cause I’m fascinated. I checked it out, so you’re the chief behavioral economist at Qapital. Qapital is a banking and budgeting app available in the United States, and it uses behavioral finance principles to help make people better, to help people make better decisions with money and help improve their financial habits. I took a look. The UI is very not bank-like. It’s fun to look at, so-
Dan Ariely:The designers are great, I have to say. They’re really wonderful, and there’s like a magic to design that science hasn’t figured out. I can’t tell you what’s a good design, but when you see it, you recognize it, and then there’s lots of elements from this, so we talked already about the cards, right? Preloaded once a week on Monday and so on, but there’s lots of other features.
One important feature is realizing that the money you have in your checking account is not always, is not the money available to be spent, so think about two people, as an example. Both of them get paid on the first of the month. One of them has their mortgage check coming out on the 2nd, and one of them on the 19th. What’s the difference in how they perceive their finances? The guy that has their mortgage coming on the 19th, for 17 days thinks that they have money, but they don’t.
The money has been spoken for, but it just sits in your checking account, so in many ways the checking account is like the garbage can of personal finance. You have money there. Some of it is for mortgage. Some of it is to pay your insurance in six months. Some is to pay your kid’s tuition. Something is for summer. It’s really not a good system. You wouldn’t design a checking account. You wouldn’t go to a company, and go to the CFO, and say, “Can you make this investment?” And he would say, “Let me look at how much money I have in checking.” Money has been labeled. In fact, the moment your salary hits, almost all of it has been labeled, some of it more than once, but you just don’t remember the labels, so one of the things that Qapital does is to be more specific about those labels, and we use goals.
Kerry K. Taylor:Is this like mental accounting?
Dan Ariely:That’s right. That’s right, but it’s not mental. We create a real representation for it, right, that says, “This is your money for your summer vacation, and this is your money for your next computer, and this is the money to pay your bills, the insurance bill and your kid’s school tuition, and so,” and that helps you understand better.
Kerry K. Taylor:As an aside, let’s unpack mental accounting because it’s a cognitive bias most of us have. Mental accounting is our tendency to label money and put it in a specific bucket that isn’t interchangeable, but our money is interchangeable. One dollar is as useful as another, but we still tend to put our money into different mental accounts and use it differently, so you may spend your tax refund more freely by treating yourself, but you’ll be way more responsible with your paycheck and use it to pay the bills. That’s mental accounting.
Now, Dan puts this bias to really good use at Qapital because he turns mental accounts into physical banking accounts, so people can visually keep track of budgeting and calculate the opportunity cost of spending from one category to the next, so our budgets become way more physical and a lot less mental.
Dan Ariely:And then, on top of that, there are things that help you get more motivated, so there’s some things that are just not that motivating, like long-term saving, or paying off debt, and so on, and we have all kinds of things that increase the motivation. We show you progress. There’s a really beautiful integration with If This Then That, so you can, for example… I put a bit more money into our summer vacation every time my kids e-mail me. Let’s say every time the kids e-mail me, a bit more money moves into that. You could do rules that says, if you walk 10,000 steps, money will go into your coffee account. I mean, there’s all kinds of things to do, which is basically creating lots of opportunities to motivate ourselves, and when you think about money, there’s really kind of couple of decisions. It’s about consuming now versus later.
That’s one decision, and for that, we need to understand the later. We need to visualize the later. We need to think about the later, and we need to understand those trade-offs, and if somebody goes automatically into later, and then we say, “Oh, well, I want to take it back,” that’s a better process than saying everything is in the now, and I have to move money into the later, and the second thing is to decide what we want to buy now, and again, here, going back to our supermarket example from earlier, or the food example, the world is trying to derail us.
You go to the supermarket, and you have a list in your mind, and you have a budget in your mind, and then the supermarket has a different goal, and their goal is not the same as yours, and guess what? They control the environment, so they decide what to put at the end of the aisle, and they decide where to put the cookies, and what to put next to the cashier, and they’re not trying to get you to buy more cucumbers. They’re trying to get you to buy the things that tickle your emotions and get you to crave something. That’s a much easier job for them, so Qapital is basically trying to say, “Tell us what your goals are. “We’ll help you, “and then we’ll do the budget “in a way that would help you keep those things. “We’ll help you.” I mean, we can’t guarantee it, but we’ll get you get more enlightened.
Kerry K. Taylor:Right, so I guess with the budgeting, then, we can weigh opportunity cost, and when we see goals, then it becomes visual, so we get motivated.
Dan Ariely:That’s right, so imagine two cases. Imagine two people. Both of them want to buy a new bicycle at the end of the year, and it’s a relatively expensive electronic bike, and they want to drive their car less and use their bike, and one of them has a mental budget for that, or a budget for that, and every time they get a paycheck, $200 goes to that account, and the other person doesn’t have it. The money is just sitting in checking account, and now both of those people go for a drink in the pub, and one of their friends says, “You know, there’s a really amazing new restaurant in town. They charge $400, but it’s an amazing meal,” and they both look at their bank account to see if they have enough money or not.
Which one is likely to be tempted? The one that wants the bicycle see that they, they don’t have that much money in checking account, and they realize that if they want to do that, they have to take money away from their bike, right? Now, that person could say, “Oh, you know what? “I’ll delay the buying the bicycle by two months, “and I’ll take $400 away from that, and I pay for it,” but at least they’ve done the mental exercise. Now, if that person really wants a bike, and they don’t care so much about the meal, they will not do it. If the meal is better than the bike, they’ll do it, and it’s fine to do it.
I’m not saying people should not go and have amazing meals, but it’s not what people would naturally do, so we need to basically get people to say, “It’s fine. Expensive meal is fine.” We just want to make sure that it really fits with your overall objectives.
Kerry K. Taylor:Right, so this is all about opportunity cost.
Dan Ariely:Exactly.
Kerry K. Taylor:So let’s talk about opportunity cost because it’s the biggest thing we don’t consider when we spend our money because when we spend our money on one thing, that’s money we aren’t spending on something else. Money we spend today can’t be spent tomorrow. What’s the trade-off? There are alternative ways to spending money, and that’s surprising to so many people because we don’t normally consider those alternatives. So before buying anything, try reframing your spending decision in terms of opportunity cost to see if something is worth it for you, and ask yourself, “What are the alternatives to buying this thing? What else could I do with all that money? And what’s the trade-off?”
Dan Ariely:An opportunity cost is very hard to think about, right? If you’re going to buy whatever it is, let’s say an expensive meal, where’s the money coming from? A lot of the modern tools are making it impossible to see opportunity cost. We want to bring opportunity cost into the picture. We’re supposed to think about opportunity cost, right? If this expensive meal is better, it’s better to delay the bike by two months and buy it, that’s fine, but we need people to at least make those trade-offs.
Kerry K. Taylor:Right.
Dan Ariely:But because thinking about opportunity cost is so hard, people naturally just don’t.
Kerry K. Taylor:Yeah, no, for sure, and I mean, the fact that everything’s automated as well. I mean, I always explain to people we need to have goals, right? So I think people naturally have good intentions ’cause most people, if I ask them, “What are your financial goals?” They can list off a whole bunch, right? But it’s almost like they’ve got the intention, but they don’t put it into practice, so when you automate it-
And it’s hard.
Dan Ariely:That’s right. That’s right. It’s so hard to put goals into practice, right? What are you supposed to do? It’s so much work, so we don’t do it, but if an assistant, and again, going back to electronic, if we had paper money, setting up goals would be very hard. You have digital money, yes, people can abuse us, but we can also create a system that automatically creates goals, move money automatically, helps us track it, helps us think about what is, and make better decisions. With paper money, it would have been very tough.
Kerry K. Taylor:Mm-hmm. Okay, that’s amazing. Okay, I wanna talk a bit about the pandemic ’cause a lot has changed in the last few months. Many people have lost their jobs. Some of us are working from home. Some of us have reduced incomes. Our kids are stuck at home with us, so there’s a lot of stress and financial anxiety going on. Have our financial habits changed during COVID-19? Are we making better decisions because we have less money? Or is the pandemic just amplifying our already messy money behaviors? What’s going on?
Dan Ariely:Yeah, so first of all, it’s terribly sad. Loss of job is real. Governments around the world are too slow in reacting, and the people who have money are also extra cautious, so lots of things have changed, and I think the question now is for how long will this change last?
And one perspective is people are spending less, then the economy will open, and people would go back to what they were spending before, but I think there is an opportunity here, and the opportunity is to reflect on the relationship between spending money and joy, so you’ve been in lockdown for a year, a bit more, and I can ask you, “How much money two years ago did you spend on going out?” And I’m not asking you to say it, but I could, right? And then I could say, “And now that, for the last year, you haven’t, “how much has your quality of life changed?” Now, it could be that somebody said, “I moved from $1,000 a month to 0, “and my life sucks,” and then you say to this person, “Go back and spend lots of money on eating out,” and it could be that people would say, “You know what? “I’m actually enjoying eating at home,” or, “Once a month is sufficient,” so when we come to spend money, the issue is how much joy are we getting from it? And how much is it costing us?
Now, if two years ago I came to you and I say, “Would you mind for three months not going out, “and then report to me “how much it would change your quality of life?” You would say, “No,” but now we had this opportunity. We have been in lockdown. We don’t buy clothes. I mean, lots of things are happening, and I think it’s a good time to stop, reflect, and see whether there’s a new balance between happiness and spending, and if there is, we need to write it down, and we need to create a new budget.
You see, the moment COVID is over, the pressures in the economy would want to get us to go back to the old equilibria, but maybe we don’t want that. Maybe we, and by the way, it’s not just about money. Maybe there are things we’ve realized about spending money with friends. Maybe spend time with friends, with family. Maybe realize new things about sleep, so it’s an opportunity to say we had this terrible period, absolutely horrific in all kinds of ways, but did we learn anything about the equation of money, time, happiness, and can we somehow make decisions that would stay with us for a long time?
Well, I’ll tell you, just for me, personally, I used to spend, I used to travel about 300 days a year. That’s a lot. The last few months, 0. All of a sudden, I’m saying, “You know what? “There used to be days “when I had a project in a slum in Africa, “and I would just fly over, spend a day, “land in the morning, “spend two days in this particular slum, “learn as much as I could, and take a flight back.” That was lots of hours. All of a sudden I’m thinking, “Are there better ways to spend my time “and to learn the things I had to learn?” So in all kinds of ways, I think it’s a really important opportunity to reflect.
Kerry K. Taylor:What are some of the most important financial decisions we should be making right now?
Dan Ariely:Yeah, so first of all, I think we see at Qapital that people are opening lots of emergency savings, and I think that being diligent about saving is incredibly important, and first of all, it gives us some sense of control in this period where we have so little control over our lives. It gives us some resemblance of control. Here, I’m putting money into savings. I’m putting money into savings, so I think we have to do that. We have to create a rainy day. None of us know what exactly will happen to the economy, and our job, and so on.
We have to also figure out what we can cut on spending, and I think we all need two plans. We need a plan for now, to say, “Let me cut spending right now “in the following things,” but we also need to have a plan just in case things get worse, so you can say, “Okay, if my income is get cut by more than 20%, “what will I do?” Rather than wait for that to happen, we should plan, so I think savings, reduce spending now, and a plan for later is important. Also, there are all kinds of things to, all kinds of things to trim. In the U.S. lots of people have storage units, right? So you had all this stuff that you accumulated over a long time, and you didn’t have enough space at home. You buy it. You rent space outside. Maybe it’s time to let go those.
And then the other thing is there is going to be, there is unemployment now, and there’ll be more unemployment, and brushing up on skills, and the kind of, imagine a few scenarios. Scenario one is the whole company closes. Scenario two, there are layoffs, and some people are let go, and some people are not. Improving our human capital is incredibly important, right? So this is, it’s going to be tough. It’s going to be tough in the next phase of looking for a job, and we all need to kind of figure out what we need to brush on, improve, and so on to be relevant to the workplace.
Kerry K. Taylor:Yeah, for sure. I feel like I’m always in school. Okay, one last question. The stock market moves a lot. It’s really uncomfortable when we see our retirement savings take a plunge, and I get a lot of e-mail from readers who want my advice on timing the market. They wanna buy the dip, and I tell them I don’t know the dip. I’m not clairvoyant, so it’s a struggle to explain this, but should people even be looking at their portfolios right now?
Dan Ariely:No. No. There was a study by Fidelity a few years ago, and they found that the people who did the best long-term investing are people who died, right? Because they did not do anything in their portfolio, and the reality is what happened is if you’re trying to time the market, you can’t be smarter than everybody else. It just doesn’t work, so my sense is the best strategy for most people, so in the stock market, in general, some generalization. There are people who are experts, and the people who are experts should go ahead, and time the market, and do what they want in the.
Then there are people like me, who basically say, “I’m just an average Joe. “I don’t know anything more than other people. “I don’t have a unique perspective,” and for me, it’s kind of, I want some money in cash in case something bad happens, and the rest of it, I have no idea. I’ll put it in the stock market, and I will not watch because watching is just painful. Why do I want this pain, right? I’m not going to make any decision, and then there’s the middle category, so we said the ignorant people, right? The people who recognize that they don’t have any unique value or insight into the market, and we should do nothing, and we shouldn’t watch.
Then there are the experts, right? Some really amazing people, George Soros, kind of, people who know a lot, and they should go ahead and do everything, and then there’s a second category, and the second category is the people who think that they know, but they don’t really know, and those are the dangerous people, right? They’re the dangerous people because they feel that they know, and they try to time the market, and they do day trading, and they do all kinds of things. Those people really belong in the don’t-do-anything category. They just don’t.
They just don’t see it, so I would say for most of us, if you ask me what’s the best asset class to invest in right now: stock, bond, real estate, duh-duh-duh, I would say human capital. The most assets that yields revenue for any of us, for any normal people, right? It’s us. We’re going to get more value out of our own skill, and intelligence, and knowledge, and so on, than dividends from the stock market, and I think we need to invest in that asset. It’s a time to go back and invest in our ability to be productive in the workplace rather than speculate about timing the market.
Kerry K. Taylor:Mm-hmm. ‘Kay, we’ll leave it there. I just wanna thank you. You’re amazing. Your optimism is incredible, and I appreciate your time today, and I look forward to seeing what you do in the future because I really could use a bigger house, so thank you so much. I appreciate it.
Dan Ariely:Thank you.
Kerry K. Taylor:Have a great evening.
Dan Ariely:Thank you very much. You too.
Kerry K. Taylor:And now I would love to hear from you. I’m super curious: are you into behavioral economics as much as I am? Or were there some other insights you got from this interview? I wanna hear about it in the comments. Now, as always, the best conversations always happen over at squawkfox.com, so head over there and leave a comment right now, and if you’re not already, please subscribe to my e-mail list and become a Squawkfox insider. You’ll get my free budget bundle and priority access to all my stuff once a week in your inbox. Thank you so much for tuning in to SquawkfoxTV, and The Cash and Kerry podcast, and I will catch you next time. […]

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In today’s world, putting money into a traditional savings account just isn’t enough to cut it. You can scrimp and save for decades and still not end up with enough money for your retirement. In order to build up enough wealth to meet your long-term goals, you need to invest your money.
Thanks to technology, it’s surprisingly easy to invest for the long term. The rise of robo-advisors in Canada provides a simple way for you to “set it and forget it” as you strive to create a nest egg.
But what is a robo-advisor? And can you trust a computer with your money? The good news is that robo-advisors offer a cost-efficient and easy way to start investing. Read on, and I’ll answer all your questions about Canadian robo-advisors — and even provided reviews of my top choices.
What is a Robo-Advisor?
Let’s start with the basics. A robo-advisor is a company that takes your money and invests it automatically in a portfolio that reflects your risk tolerance. Your portfolio is created using exchange-traded funds (ETFs), which are similar to mutual funds but trade like stocks on the exchange.
It’s important to understand that robo-advisors aren’t actually robots. Instead, it’s all about the automatic investment according to time-tested investment theories. Most robo-advisors adhere to Modern Portfolio Theory (MPT), the management style put forth by Nobel Prize winner Harry Markowitz. The idea is to focus on asset allocation instead of individual stocks.
When you talk to a “real” financial advisor or money manager, they, too, will use MPT to help you put together a portfolio. They are likely to use actively-managed mutual funds and may even try to pick individual stocks on your behalf. With a robo-advisor, though, the process is automated, based on your own profile, time horizon, and goals. And, instead of actively managed funds and individual stocks, robo-advisors tend to favour index ETFs.
And, finally, let’s be clear. With Canadian robo-advisors, you’re not being shuffled off to a heartless robot. In fact, these companies are run by actual human beings — usually very knowledgeable humans with impressive backgrounds. They handle your customer service, tweak your portfolio, and make sure the computer’s algorithm and chosen portfolio still make sense for you. In many cases, the people behind the robo-advisors construct the portfolios that you automatically invest in each month.
If you want to hear more about robo-advisors, hit play on this episode of the MapleMoney Show, where I bring on Kyle Prevost to cover what a robo-advisor is and how you can get started.
Why are Index ETFs so Great?
Most robo-advisors in Canada use index ETFs in portfolio construction. So, why are these investment vehicles better than actively managed mutual funds or stock picking? Well, because human beings, research shows, are terrible at choosing the right investments.
Index investments, on the other hand, follow the performance of a wide swath of the market. You can even find index investments that track the entire market at once. With an index fund, you get access to the performance of a huge portion of the market as a whole. That means that it’s less about whether or not a single stock or bond is doing well and more about how the market overall is doing.
Since the market as a whole has never come up negative in any 25-year period, when you have a long time horizon (as you do when saving up for retirement), you aren’t likely to lose out with a diversified mix of index investments.
Index ETFs are used by many robo-advisors in Canada because they not only provide some of the best chances for long-term wealth-building but also because they are low-cost. ETFs are very cost-efficient, usually with lower expenses than traditional mutual funds. And, of course, this also means that you can get a lower-cost product than you would by using a more traditional investment advisor.
What Do Robo-Advisors Do?
A robo-advisor is perfect if you want to start investing, but you aren’t sure where to begin. You know you need to set money aside for the future, but you might be concerned about how many choices there are. Or maybe you don’t feel like you have the time to do all the research needed to pick the right investments for your situation.
Robo-advisors are designed to help. A robo-advisor will figure out an appropriate asset allocation (the combination of stocks, bonds, GICs, and other assets), and then automatically apportion your monthly contribution to the chosen assets, in the form of ETFs.
Basically, you agree to invest a set amount of money each month and the robo-advisor automatically puts it where it will do the best as it grows. Most Canadian robo-advisors also include the opportunity to talk to someone (or at least to email or live chat) about situations as they arise. Here are five things you can usually expect from most robo-advisors in Canada:
Access to a wide range of index ETFs that are cheaper and better options than most actively managed mutual funds.
Straightforward contribution choices available for a variety of accounts, including RRSP, TFSA, and RESP.
Simple and “light” advice, depending on the company, and usually access to human customer service to answer your questions.
Websites that are intuitive, easy to use, and visually appealing.
Services like automatic rebalancing that help you stay on track with your long-term investment goals.
The great thing about a robo-advisor is that it costs a fraction of what many other investment advisors charge. You might pay fees upward of 3% a year with a more traditional advisor. With a robo-advisor, your fees might be much lower — closer to 1% a year (or less). That means more of your money goes toward building your wealth.
Now, it’s true that you won’t get highly customized service with robo-advisors. Instead, you’ll get an asset allocation that generally works for you, using broad-based portfolios designed for different situations and time horizons. However, for those getting started, and those who want a long-term solution, a robo-advisor can be a great tool. You can fill in other financial and estate planning issues later when you have more assets or the need for instruments like trusts and wills.
How Safe are Robo-Advisors?
No investment is ever completely safe. There will always be periods when an investment loses value, no matter what it is or where you keep it. However, Canadian robo-advisors are just as safe as the next investment. In some ways, a robo-advisor is safe than your traditional active mutual fund manager.
First of all, the fact that most robo-advisors in Canada use index ETFs is a point in their favour. Index investments, as mentioned above, focus on large swaths of the market. So, as market performance improves over time, so does your portfolio. There are periods of downturn, and market events are very real. However, if you look at a long-term trend line, you will see that market performance smooths out over periods of decades. Ride out a stock market downturn, and there’s a good chance you can lock in gains later.
Next, realize that all the reputable Canadian robo-advisors use investment dealers that are members of the Canadian Investor Protection Fund (CIPF). That means your investments account is protected from dealer insolvency — which doesn’t happen very often anyway. Your assets are protected from problems with dealers and robo-advisors (even if you can’t fully protect your money from the vagaries of the economy and the stock market).
And don’t forget that robo-advisors use investment methods that have been time-tested for decades and are considered suitable for most people. Plus, in many cases, robo-advisors adhere to a fiduciary standard with their clients’ money. That means they have to put your interests first.
In the end, your money is pretty safe with a robo-advisor. At least, it’s probably safer than it would be if you picked your own stocks, or even if you had a professional managing a high-cost actively-managed mutual fund.
Couldn’t You Just Do All This Yourself?
True story. Nothing robo-advisors do is nothing you couldn’t do yourself. In fact, most Canadian robo-advisors are so transparent that you can see a list of everything in your portfolio. If you wanted to, you could simply open a discount brokerage account and then buy shares of the index ETFs listed, in the same proportions as are recommended for you.
However, the appeal of a robo-advisor is the fact that you don’t have to do any of the legwork. You pay a little extra in management fees (although not nearly what you pay a traditional advisor) for the convenience of having it all taken care of for you.
So, why do I recommend robo-advisors to most people if they can do it for themselves and do it a bit cheaper? Simply because most people won’t actually do it.
It’s common for would-be DIY investors to research and read and swear that they will start investing — and then do nothing. The reality is that taking the first step is harder than it looks, and not everyone likes managing their portfolios, even if there isn’t a ton of management necessary.
When you take on DIY index investing, the truth is that you have to be ready to rebalance your portfolio between two and four times a year. You have to evaluate the ETFs and the asset allocation you choose to see if they are still working for you.
Most young Canadians, though, are not. In fact, most people don’t want to manage their own investments. They want a simple way to automatically invest a set amount of money each month, and then they want someone else to take care of it. And they don’t want to pay an arm and a leg for the service, either
That’s what a robo-advisor does.
Robo-advisors free up your time so you can concentrate on living (or even making more money to invest and put to work for you). They use time-tested methods so you don’t have to try to reinvent the wheel on your own. And they do it in a cost-efficient manner that allows you to keep putting more of your wealth toward your future, rather than watching your real returns eroded by steep management fees.
While I like the challenge of building a portfolio and handling my investments a bit more directly, I also like to free up my time wherever possible. While I currently invest in ETFs directly through a discount broker, I’m considering moving to a robo-advisor so that I know my portfolio is automatically balanced and I’ll barely have to look at it.
Robo-Advisors Comparison: The Top Canadian Robo-Advisors
If you are looking for a place to start with robo investing, check out some of my favourite advisors. These robo-advisors offer access to investments and educational tools that can help you make a solid start in your long-term investing plan:
Wealthsimple: The Best Overall Robo-Advisor
If you are looking for the best robo-advisor in Canada, Wealthsimple is a good place to start. It’s the largest robo-advisor in Canada, managing $400 million in assets, and the only mobile app in Canada that allows you to sign up for an investment account.
Additionally, consumers can confidently trust Wealthsimple due to the fact that it acquired its own broker, ShareOwner, and has $32 million in funding from Power Financial.
Wealthsimple offers access to a wide variety of index ETFs to help you build a portfolio in a variety of accounts. The advice is human-assisted, and the advisors have experience managing high net worth portfolios. Additionally, there are 15 full-time developers committed to building out the best technology available.
There are no commissions, and the fees are very reasonable. It’s a solid choice for anyone looking to get a good start. See complete Wealthsimple review.
Features:
Invest in fractional shares, eliminating the need for account minimums.
Connect with the Wealth Concierge team via phone, email, text, or Skype.
Socially responsible investment (SRI) options available. You can invest according to conscience with Wealthsimple.
When referred from MapleMoney, your first $10,000 is managed for free for the first year, and after that, there is an annual fee of 0.5% or 0.4%, depending on the size of your account.
Includes a mix of Canadian, U.S., and international stocks and bonds.
A variety of registered accounts and non-registered accounts so that you can meet your various long-term goals.
Get started with Wealthsimple here.
Nest Wealth: Top Choice for Larger Portfolios
As your portfolio grows bigger, you find that more dollars go toward fees. It’s just the way it is when you pay a percentage of your balance. Nest Wealth changes that model by charging a flat fee of $20, $40, or $80 per month, depending on the size of your account. If your portfolio size is at least $150,000, you don’t have to ever pay more than $80 a month in management fees.
On top of that, Nest Wealth is the only robo-advisor in Canada to keep its accounts at a major bank. This offers protection for your money. Plus, you have access to the resources of a large bank, but the service of a smaller concern. Not only that, but each customer of Nest Wealth gets a customized portfolio. You won’t see slightly tweaked pre-packaged portfolios.
Finally, this Canadian robo-advisor prides itself is using the most efficient combination of blue-chip ETFs. The average expense ratio works out to be about 0.13%, which is very low. You will have to pay third-party transaction fees and expense ratios, but if you have a large portfolio, the savings from management fees can make a huge difference. See complete Nest Wealth review.
Features:
A wide variety of blue-chip ETFs used to create low-cost portfolios.
Experienced managers, including the CEO, who has been managing money for 15 years.
Fully customized portfolios for each customer.
Monthly management fees capped at $80 per month and yearly third-party trading fees capped at $100, no matter the size of the portfolio.
Portfolio balancing on a regular basis to ensure your portfolio continues to operate at the optimal level.
Full range of registered and non-registered accounts and a holistic approach to account management.
Get started with Nest Wealth here.
ModernAdvisor: Largest Portfolio Managed for Free
If you’re looking to get started investing with a Canadian robo-advisor and you don’t want to pay a lot in fees, ModernAdvisor can be a good fit. This robo-advisor allows you to invest up to $10,000 without any management fees. This is the largest “starter” portfolio managed for free in Canada. This can give you a solid start before your money starts being siphoned away for fees.
On top of offering a large free portfolio, ModernAdvisor also offers one of the most competitive pricing structures for portfolios that hit $100,000. In many cases, Canadian robo-advisors wait until you have a higher balance before your management fee drops to 0.4%.
You can also take advantage of the Springboard program to practice online investing. It’s a demo account, but if you are nervous about putting your own money in first, it’s a good way to get a little practice in. Model some strategies and ideas before you put in your own money. See complete ModernAdvisor review.
Features:
Large free portfolio management of up to $10,000. After that, fees range from 0.50% to 0.35%, depending on the size of your balance.
Fee analyzer tool that allows you to compare actively managed mutual funds with ETFs to see where you can get the best bang for your investment buck.
Demo account through the Springboard program that allows you to test out online investing before committing your own funds.
SRI choices for those who are interested in making sure their portfolios match their values.
Includes diversified asset classes, including various stock and bond ETFs, as well as REITs to add a real estate asset component.
Tax-advantaged and non-advantaged accounts, and different management techniques to help ensure the best outcome over time.
Get started with ModernAdvisor here.
Justwealth: Great Robo-Advisor for RESPs
If you are looking for the best robo-advisor in Canada for your child’s education account, Justwealth is a great choice. Justwealth specializes in target-date portfolios. This allows you to figure out your goal’s time horizon and then your portfolio is managed accordingly. As you work toward funding your child’s education, Justwealth can help you with a target-date RESP.
Justwealth does have a slightly higher management fee, and it’s divided into two tiers: 0.50% for account balances under $500,000 and 0.40% for account balances above that. There are also minimum fees for smaller account sizes, so pay attention (although RESPs have smaller fees).
In addition to RESPs, Justwealth also offers a variety of registered and non-registered accounts you can use to meet various goals. Think about what you are looking for in order to achieve best results. See complete Justwealth review.
Features:
Specializes in target-date portfolios for RESPs.
Features a portfolio review. This review takes a look at your current portfolio and analyzes it for fees, account structure, and diversification.
Simple fee structure, although there are minimum fees charged for smaller accounts.
Goal-based investing focuses on your time horizon, and how to achieve your goals, rather than just assigning you a general portfolio.
Tax-efficient strategies so you keep more of your money.
Those involved with Justwealth and their advisory board are a mix of specialists, credentialed advisors, and PhDs.
Get started with Justwealth here.
WealthBar: Best for Personalized Financial Planning
If you’re looking for someone to help you with long-term financial planning and seeing where your investments fit into the bigger picture, WealthBar can be a good choice. This is one of the best robo-advisors in Canada since they offer money management help through a dedicated financial advisor for each client.
You do need a minimum of $1,000 to start investing with WealthBar, but they will manage your first $15,000 for free through our link. Fees range from 0.60% to 0.35%, depending on the size of your account. But it’s nice to get a solid start with the first $15,000 managed free.
Where WealthBar really shines, though, is the personal attention to detail. Those involved with WealthBar have long experience managing high net worth clients, and they bring some of that attention to detail and personal help to your portfolio. Plus, with the financial planning component, you know you’re getting a holistic look at your finances and investing. See complete WealthBar review.
Features:
You need $1,000 to start investing, but you can set up an automatic deposit before you reach that amount so you can build up to the $1,000.
Your first $5,000 is managed for free, after that fees range from 0.60% to 0.35% as your account balance grows.
All clients received a dedicated financial advisor. While portfolios are created with technological help, you can still contact your advisor for information about financial planning.
Accounts are optimized for taxes.
Access to Nicola Wealth Management’s private investment pools through your WealthBar account. Normally, you would need at least $1,000,000 to access these private portfolios.
A variety of account types and investments to help you reach your goals.
The only Canadian robo-advisor to offer RDSPs. However, you need to have another account with them first.
Get started with WealthBar here.
BMO SmartFolio: Best Choice from the Traditional Major Banks
If you tend to be somewhat hesitant to try new things, when it comes to testing the waters with a robo-advisor platform, BMO SmartFolio might be right for you. What SmartFolio provides is the stability and peace of mind that comes from dealing with one of Canada’s largest, and most long standing financial institutions.
BMO SmartFolio fees however are somewhat higher than those of many of their competitors. For example, you will pay an advisory fee of .70% on the first $100,000, and .60% on the next $150,000 invested.
In addition, the Management Expense fees (MER’s) associated with the SmartFolio ETF portfolios tend to be slightly higher than those of their competitors. This is mainly due to incorporating a broader mix of more specialized ETF products that seek to for example reduce volatility. Incorporating ETFs that have more complex and specialized mandates can result in slightly higher MER costs vs. plain-vanilla index tracking ETFs.
Overall, while fees may be modestly higher than some other robo offerings, what’s also unique to SmartFolio is tapping into a worldwide Top 40 Global Asset Manager and the collective experience and expertise of the portfolio management team. They also bring a slight touch of active management making tactical decisions based on market activity to optimize portfolio performance.
Features:
The stability and peace of mind that comes from dealing with one of Canada’s largest financial institutions, and it’s oldest.
Pre-constructed ETF portfolios that can include some more specialized ETFs, along with global asset management expertise while providing a competitive, if slightly higher, fee structure.
An introductory offer of $15,000 managed FREE for the first year.
BMO SmartFolio will pay the fees to transfer your investments from another financial institution
A low minimum account threshold of $1,000
Get started with BMO SmartFolio here.
Mylo: A Robo-Advisor For Your Spare Change
Mylo is proof that investing doesn’t always have to be associated with long term financial goals. This is a revolutionary app, similar to Acorns in the U.S., that uses a robo-advisor platform to invest your spare change. This makes Mylo ideal for your short term savings goals, things like that next vacation you’ve been planning, or the emergency fund you’ve been putting off. In fact, Mylo places your financial goals at the forefront, by helping you set specific savings targets, including the date you wish to reach them by.
Mylo links to your main debit and/or credit card, and rounds up all of your purchases to the nearest dollar. For example, say you buy a coffee for $1.45. It will roundup by assigning $.55 to the savings goal you’ve set. Once per week, it withdraws the “spare change”, and automatically invests it in a low-fee ETF portfolio that matches your investment time horizon and risk tolerance.
A basic Mylo plan is only $1/month, so it’s very affordable. You can upgrade to Mylo Advantage for an additional $2/month, and get a number of added perks, including TFSA and RRSP account options, and next day withdrawals, which are free. I recently opened a Mylo account to see how it works, and I’m really enjoying it. Even though my investment plan is well established, it never hurts to set aside a few more dollars. Besides, Mylo’s intuitive mobile app makes savings a lot of fun.
Features:
Simple, roundup savings platform
Intuitive app, easy to use mobile app
Focus on financial goals
Ideal for newer investors
Robo-investing for as little as $1/month
TFSA and RRSP accounts available with Mylo Advantage ($3/month)
Socially Responsible Investing (SRI) functionality
Access funds with free, next day withdrawals (Mylo Advantage)
Get started with Mylo here.
While I believe these are the best robo-advisors available right now, you do have more options you might want to look into, including:
Sign Up for a Robo-Advisor Today
You can’t really go far wrong with any robo-advisor you choose. All of the Canadian robo-advisors come with low costs, especially when compared with actively managed mutual funds and more traditional investments.
It takes the concept of couch potato investing to the next level. You don’t have to do anything, other than take 10 to 15 minutes to sign up for an account, set up an automatic investment schedule, and then wait for someone else to do the heavy lifting.
You can find other great opportunities with robo-advisors like Betterment and WealthFront if you live in the United States as well. Don’t let these opportunities pass you by. There are a lot of great chances for you to get started.
Plus, don’t forget. There are some exclusive offers for MapleMoney readers. If you sign up through us, you can get:
ModernAdvisor offers MapleMoney readers $50,000 managed free for one year when you open and fund a new account.
WealthBar gives our readers up to $15,000 managed free for 1 year when you sign up and fund your account.
Wealthsimple has no management fees for a year on the first $10,000 of investments.
Justwealth will give MapleMoney readers a special $50 bonus when you open a new account.
Investing truly is one of the best ways to build wealth over time. Don’t let it pass you by. Use one of the best robo-advisors in Canada to start your investing journey and reach your long-term financial goals.

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It’s been over 10 years since the federal government launched the Tax Free Savings Account, yet to many Canadians, it remains somewhat of a mystery. In all likelihood, that’s due to the terrible branding this government registered investment account received from the outset. I mean, it isn’t actually a savings account, after all.
In this article, I’ll do my best to clear up some of the confusion surrounding the TFSA. I’ll also show you how you can get the best use out of the account, and even cover some of the top TFSA investment options available today.
What is a TFSA?
It’s best to think of a TFSA as a ‘tax sheltered umbrella’ of sorts, under which you can invest your money any variety of ways. And while you actually can hold money in a savings account within a TFSA, it’s often more beneficial to use your ‘umbrella’ for investments that offer the potential for higher returns, such as stocks, mutual funds, or ETFs. To achieve a balanced portfolio, bonds and GICs are also available.
TFSA vs. RRSP
In a lot of ways, the TFSA is similar to the RRSP. For starters, both offer the potential for tax-sheltered growth. The main difference lies in the way you fund the accounts, and when you end up paying taxes on the money.
With an RRSP, you receive an immediate tax deduction on any monies deposited into the plan, and are taxed on the money when it’s withdrawn after retirement. With a TFSA, you don’t get the benefit of a tax deduction, but you won’t pay taxes when the money is withdrawn. Not only that, but you don’t lose your contribution room when you withdraw from a TFSA. You can deposit the same amount the following year, over and above your regular contribution.
Which is Better – TFSA or RRSP?
A popular point of discussion is whether it’s better to invest in an RRSP or a TFSA. The best answer is that it depends entirely on the individual. In general, higher-income earners will receive a greater benefit from the tax-deductibility of an RRSP, so that may be the better point of focus. I recommend that Canadians of all ages and income levels consider investing in both RRSPs and TFSAs, but tailor your strategy to what is most suitable for you.
Who Can Contribute to a TFSA
Any Canadian resident with a Social Insurance Number, who is 18 or older can contribute to a TFSA, providing they’ve reached the age of majority in his or her province. Unlike an RRSP, the contribution room isn’t linked to earned income.
TFSA Contribution Limits
For 2019, the annual contribution limit set at $6,000 and is indexed for inflation each year. The lifetime contribution limit is $63,500, for anyone who has been eligible to contribute since the TFSAs inception (2009). Your annual contribution room grows regardless of whether or not you are actively contributing.
The TFSA is unique from an RRSP in that withdrawals from the plan can be re-contributed the following calendar year. For example, if I withdraw $10,000 from my TFSA in 2019, I can re-deposit that amount as early as January 1, 2020, and still make my regular annual contribution of $6,000 that same year.
Penalties on TFSA Over-Contributions
One feature I love about TFSAs is having the ability to re-contribute any funds withdrawn in the current year, the following year. This adds to the TFSAs flexibility, making it easier to save for a variety of both short term and long term goals. However, you must use caution to avoid over-contributing to your TFSA.
More specifically, any contribution made to the TFSA beyond the maximum allowable amount is considered an over-contribution. If this occurs, the Canada Revenue Agency (CRA) will charge a penalty of 1% per month on the excess contribution until it is withdrawn.
For example, if you were to over-contribute by $6,000 for a period of 12 months, you would be facing penalties of more than $720. Staying within your contribution limit is your responsibility, and your financial institution isn’t equipped to keep track of this for you. That said, CRA does keep track, and you can verify your available contribution room any time, by accessing your CRA MyAccount profile online.
Transferring Your TFSA Between Banks
You can move your existing TFSA from one financial institution to another, by initiating the transfer from the receiving institution. Keep in mind that most FI’s charge a transfer out fee, which may or may not be reimbursed by your new provider. You also need to decide if you want to transfer investments ‘in cash’, or ‘in kind’. This may or may not be an option.
What Happens to My TFSA If I Die?
When you open a TFSA account, you’ll have the option of designating a beneficiary. The main benefit of doing so is to allow TFSA funds to go to someone you love, should you pass away, while avoiding costly estate taxes and fees. You can choose to name a single or multiple beneficiaries, who
would receive the funds from your TFSA when you die.
Married or common-law spouses also have the option of selecting their significant other as a successor holder, rather than a beneficiary, which provides some additional survivorship benefits.
TFSA Quick Facts
Available to Canadians 18 and over
TFSAs can hold just about any type of investment ie. stocks, bonds, ETFs, GICs
The annual contribution limit is indexed for inflation ($6,000 in 2019)
Lifetime contribution room is $63,500 (2019)
Funds withdrawn can be re-contributed during the following calendar year
Unlike RRSPs, earned income is not tied to contribution room
Ideal for a variety of savings goals ie. (emergency fund, car, vacation)
Spouses/common-law partners can each have their own account
Making the Best Use of Your TFSA Account
As I mentioned at the outset of this article, many Canadians use their TFSA account as an emergency fund of sorts, by placing the money in a high-interest savings account, or a GIC. This, however, is not the most efficient use of a TFSA as a tax strategy.
Since you do not pay taxes on TFSA withdrawals, and your money grows tax-free, it is more advantageous to allocate high yielding investments within your TFSA. Lower yielding investments would be better suited inside an RRSP or a non-registered investment account.
Where Should I Invest My TFSA
If you’re a fan of low cost investing like we are here at MapleMoney, I recommend the following two options to invest your TFSA.
If you value low fees but prefer a hands-off approach, you might want to consider the services of a robo-advisor. While the term itself may make some investors nervous, Canadians are becoming more comfortable with robo-advisors every year, thanks to companies like Wealthsimple.
Wealthsimple is Canada’s leading robo-advisor, with over 4.3B in assets under management. When you open an account with Wealthsimple, they will invest TFSA funds in a portfolio of consisting of low-cost ETFs that are aligned to your recommended asset allocation. With Wealthsimple, you’ll only pay .40% up to $99,999, and your initial $10,000 is managed for free.
If you prefer to make your own investment decisions, managing your own TFSA online through a discount brokerage can be a great option. A self-directed account from Questrade enables you to hold all of those high yield investments I mentioned earlier, like stocks, ETFs, and mutual funds.
What I love about Questrade is that they combine a state of the art trading platform with some of the lowest fees in the business. In fact, Questrade does not charge fees for ETF purchases, which alone is enough to make them #1 in my books. You can open a TFSA account with Questrade within a few minutes, from the comfort of your living room, and be on your way.
Final Thoughts on TFSA Accounts
If prior to reading this article, you were like many Canadians and found the concept of Tax Free Savings Accounts a bit confusing, my hope is that I’ve provided some much-needed clarity. I think that once you realize that the TFSA is more or less a tax shelter, inside which you can hold a wide range of investments, it makes everything that much easier to understand.

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One of the best ways to build over time is to invest. However, it can seem like a daunting task to get started. Many of us have a fear of investing and worry that we’ll do it “wrong” and lose all our money. This is where a service like Wealthsimple comes in. This is a company that can help you build a balanced, diversified portfolio so that you can begin building wealth for the future.
Thanks to the rise of robo-advisors, it’s easier than ever to get started and take advantage of passive investing. My Wealthsimple review will help you understand the ins and outs of this service so that you can decide if it’s right for you.
What is Wealthsimple?
Wealthsimple is a robo-advisor that helps you create a long-term investing portfolio. Like many robo-advisors, Wealthsimple uses the idea of asset allocation based on your risk profile to put together a portfolio.
In order to get started, you are asked questions about when you plan to retire, and ability to handle risk. Using this information, Wealthsimple can put together a portfolio for you, based on different asset classes. As with most robo-advisors, Wealthsimple works best when you plan for the long term, with a goal like retirement. Use dollar cost averaging to add a set amount of money each month, and Wealthsimple will automatically invest it on your behalf.
The idea is to use low-cost ETFs to limit your fees. This means that more of your money is building your long-term wealth, rather than going toward fees. Wealthsimple uses asset-based (a diversified mix of stocks and bonds) management to passively handle your portfolio. With the help of an algorithm, it adjusts as needed as you approach retirement.
Wealthsimple has a board of directors and investment team made up of long-time Silicon Valley folks and well-known and successful investment professionals. One of the members of the investment team is Eric Kirzner, the designer of the first ETF in North America, and a Professor of Finance at the Rotman School of Management.
It’s a simple strategy, but it’s one that’s been shown to work well for most people over time. It’s boring, but you’re more likely to see good long-term results when you use a company like Wealthsimple.
Get Started
Is Wealthsimple Safe?
One of the most important things to consider in a Wealthsimple review is the question, “Is Wealthsimple safe?” The good news is that Wealthsimple is considered one of the best financial services websites in the world. The company won the Webby for the best financial services website. Not only that, but it is the largest robo-advisor in Canada and has the highest count of assets under management ($4.3 billion), evidence of a large client base.
Wealthsimple is a big deal in Canada already, and it is also beginning to make waves in the United States. In 2017, the company is expected to open shop in London. It’s no surprise that Wealthsimple is one of the top 100 global fintech companies.
The next thing to consider when you try to figure out is Wealthsimple safe is what happens if the company goes out of business. It’s probably not likely to go out of business, but Wealthsimple is insured. Wealthsimple has a custodial broker, ShareOwner. This company is regulated closely by the IIROC. Plus, it’s also insured by the Canadian Insurance Protection Fund. This means that your account is insured for up to $1 million against insolvency or bankruptcy. If things do go bad
If things do go bad, your assets remain yours, and can choose to keep the money with ShareOwner, or move it elsewhere. It’s important to understand this for your peace of mind.
Wealthsimple Invest
The Wealthsimple brand is comprised of three main elements. The first is Wealthsimple Invest, which is considered to be Canada’s top robo-advisor service. The second is Wealthsimple Save, a simple, yet very popular, no-strings-attached online savings account. Last, but not least, is Wealthsimple Trade, a no-commission fee discount brokerage, where you can buy and sell thousands of ETFs, mutual funds, and individual stocks right from your mobile device. We’ll dive into Save and Trade a bit later, but first, let’s take a closer look at Wealthsimple Invest.
Wealthsimple Invest is built around the concept that the best way to invest is through a low-cost, passive investment portfolio that tracks the market. By automating your contributions, the idea is that you’ll come out ahead in the long term. As Wealthsimple puts it, it’s investing on auto-pilot. This is where the term robo-advisor comes in, because unlike the experience you get from meeting face to face with an investment advisor, you can open a Wealthsimple account, choose an investment profile, and purchase your investments from the comfort of your living room, using their website and mobile app.
Don’t be fooled by the term robo-advisor, with Wealthsimple, you still have the opportunity to talk to a real, live human. MapleMoney readers have the opportunity to book a free, 15-minute call with an experienced, Wealthsimple portfolio manager.
Coming Soon: Wealthsimple Crypto
In July 2020, Wealthsimple announced that they are entering the cryptocurrency game, and that clients will soon be able to buy and sell Bitcoin and Ethereum with Wealthsimple Crypto. According to Wealthsimple, you will need to open a new account to trade cryptocurrencies, but the platform will be part of the existing Wealthsimple Trade app. This means that you’ll be able to buy and sell stocks, ETFs, and crypto using the same mobile app. 
As with Wealthsimple stock and ETF trades, there will be no fees to buy and sell cryptocurrency. Instead, there will be a small spread between the market price and the transaction price, which is how Wealthsimple will make money on crypto trades. As of this writing, Wealthsimple Crypto is not yet available, but it is coming very soon. In the meantime, join the waitlist, and be among the first in line when Crypto goes live. 
Also, you can move up the waitlist by referring friends. The more people you refer, the closer your name moves to the top of the list. If you’re unfamiliar with the world of crypto, here’s an article on how to buy and sell Bitcoin and other cryptocurrencies. 
Types of Wealthsimple Accounts
What types of Wealthsimple accounts are offered? The most common account is the RRSP. Many Canadians like to use this account to save for retirement. However, you can also use Wealthsimple for other accounts, including:
TFSA
Personal taxable account
RRIF
LIRA
It’s also possible to open joint accounts. You can even open a corporate account and take advantage of lower corporate income tax rates. Plus, if you transfer an account from another broker, Wealthsimple will pay the transfer fees.
Wealthsimple Fees
In any Wealthsimple review, people want to know the fees associated with the account. What is Wealthsimple fee structure? It’s very straightforward. For MapleMoney readers, Wealthsimple will manage the first $10,000 in your account for free for the first year.
From there, up until you reach $100,000 in your account, your fee is 0.5% of your account value annually. Once you reach $100,000, your fee drops to 0.4% annually. This is a fraction of actively managed funds. Some actively managed accounts can charge 2% annually or more. You do need to be aware that there is a 20 basis point fee on currency conversions. If you need to buy or sell in U.S. dollars, that conversion will be charged. Additionally, expense ratios charged by ETFs aren’t included in the fee, so that will be extra. However, Wealthsimple makes an effort to use low-cost ETFs so that your fees are kept under control. Even with these fees, you are still likely to come out ahead.
And remember, you can get free management on your first $10,000 when you sign up through the partnership with MapleMoney. As my reader, you get access to this special deal, which can save you a lot of money to get started. Sign up from this page to take advantage of this opportunity.
Get Started
Finally, you do have to be aware of the taxes associated with paying the fees. Just like you’re charged GST on your regular purchases, you are required to pay taxes on the fees you pay with Wealthsimple.
When you have under $100,000, you get automatic rebalancing for your account, to make sure that your asset allocation remains ideal. Not only that, but any dividends you receive are automatically reinvested. You can also get help from money experts to get an idea of what to do with your portfolio next.
Wealthsimple Black
Once your account balance reaches $100,000, you qualify for a couple extra perks with Wealthsimple. Your fee includes tax-loss harvesting, which can help you make the most of your tax situation during tax time. On top of that, you get a full financial planning session regularly to be sure that you are on the right track. Not too shabby. 
Wealthsimple Generation
When you or your household exceed $500,000 on deposit across all Wealthsimple accounts, you qualify for Wealthsimple Generation. For the same small fee of .40%, Generation adds a number of additional services to the Wealthsimple Black level. You’ll receive more in-depth financial planning, tailor-made portfolios, a dedicated advisor team, which means a higher level of service, as well as 50% off a comprehensive health plan from Medcan. You even get an enhanced level of reporting at the Generation level, including income and retirement planning.
Wealthsimple Returns
As with all investing, returns depend on market conditions and what you’re invested in. You should also be aware that Wealthsimple returns aren’t going to be particularly exciting.
Wealthsimple is built on the ideas of Modern Portfolio Theory, the Nobel-prize winning theory that holds that your asset allocation matters more than the individual stocks you hold. The rise of indexing and ETFs in the last few decades have only made it easier to apply principles of asset allocation and Modern Portfolio Theory to the portfolios of ordinary investors.
Over time, your returns will compound to grow into a nest egg that can help contribute to a comfortable retirement. It’s worth noting that studies indicate that indexing outperforms stock-picking over time. Additionally, many passively managed index funds outperform managed funds over the long haul.
Wealthsimple performance has been in line with market performance, as the company uses a diversified mix of ETFs to help ensure that you have a degree of protection and risk that is appropriate for your age and your goals. No, you won’t see anything sexy with Wealthsimple. But you are more likely to see solid returns over time and build your wealth.
Socially Responsible Investing
If you’re interested in socially responsible investing (SRI), Wealthsimple has options for you. More people want to put their money into funds that reflect their values. Wealthsimple can help you do that with its SRI ETFs. These ETFs include low carbon, cleantech, affordable housing bonds, and more. The idea is to invest in companies that promote your social values. You can feel better about the way you make money with the help of SRI through Wealthsimple.
Wealthsimple Halal Investing
Wealthsimple has created an investment portfolio that includes only investments that align with Islamic investing principles. That means that any company making a profit from products such as alcohol, tobacco, gambling, pork, or weapons, is excluded from the Wealthsimple Halal portfolio. Halal investing also excludes income products, such as bonds and GICs, as they are considered debt instruments. The fees on a Halal portfolio are the same as with any Wealthsimple portfolio – 0.5% up to $100,000, 0.4% over $100,000, and $10,000 managed free for anyone you refer to Wealthsimple. I should note that the Halal portfolio does not invest in ETFs, rather it holds a portfolio of 50 carefully selected, individual stocks.
Wealthsimple for Advisors
One of the challenges of running your own financial planning or investment advisory firm is having a platform capable of doing everything from onboarding clients, opening and managing accounts, and looking after regulatory compliance. Small investment firms simply don’t have the resources to develop their own proprietary software. Thankfully, Wealthsimple for Advisors can help, by delivering low-cost investment planning products and services to advisors, enabling them to focus on what matters most, their clients. Through Wealthsimple, advisors have access to a range of ETF, mutual fund, and individual stock portfolios.
Wealthsimple for Work
This Wealthsimple review wouldn’t be complete without mentioning the cool benefits of Wealthsimple for Work. If you own a business, you can get help managing your Group RRSP. That’s great because it takes some of the hassle and difficulty off your plate. If you want to offer a benefit to your employees, this can be a good way to do it.
If you sign up for Wealthsimple for Work, you don’t have to worry about administration fees. You just pay your matching contribution, and that goes right to your employees.
Wealthsimple Save
Wealthsimple Save refers to one of Wealthsimple’s flagship products, their high interest, online savings account. Currently, the account is earning a very generous 2%, well above the savings rates being offered by most major banks. What I love about Wealthsimple Save is that there is no catch – no hidden fees or confusing introductory offers. No matter your balance, or how often you transact, you’ll earn a great rate of interest. There is no monthly fee, and you don’t pay for transfers or withdrawals. Wealthsimple Save account holders can benefit from a couple of clever features that actually make saving money a lot of fun; Roundup and Overflow. Let’s take a closer look at how they work.
Wealthsimple Roundup
When you enable the Roundup feature on your Wealthsimple App, anytime you use your debit card, your purchase is rounded up to the nearest dollar and the spare change transferred to a Wealthsimple Invest or Save account. Over time, what starts as spare change can really add up, especially when you’re earning interest on your savings.
Wealthsimple Overflow
Wealthsimple Overflow works just like it sounds. You determine the balance that you want to maintain in your account every month, and Wealthsimple will automatically transfer any overflow to, you guessed it, a Wealthsimple Invest or Save account. Before doing so, they will send you a reminder in case you want to adjust the amount your keeping in your account. Just like with roundup, these automated savings can really add up over time.
Wealthsimple Trade
Wealthsimple Trade marks Wealthsimple’s foray into the world of online stock trading. Wealthsimple Trade is similar to many of the Big Bank discount brokerages, in that you have the ability to buy and sell thousands of individual stocks and ETFs at the touch of a button, with one big difference. Wealthsimple trade won’t charge you anything to do it. You may be wondering how this is possible when most online brokers charge commission fees ranging anywhere from $4.95 to $9.95 for stock or ETF purchases. According to Wealthsimple, their low-cost model of using technology, combined with a small, dedicated team, make no-fee trading a reality. You can open a Wealthsimple Trade account within minutes by downloading the Wealthsimple App. I should note that there is a currency exchange fee of 1.5% for US trades.
Wealthsimple Review: Bottom Line
What is Wealthsimple? What began as one of the world’s best robo-advisors, has evolved into so much more. At the heart of their product lineup remains Wealthsimple Invest, their low-cost, passively managed robo-advisor platform, which offers three tiers of service: Basic, Black, and Generation. Not to be outdone is Wealthsimple Save, a no-fee online savings account that will earn you a high rate of interest with no conditions. You also get Wealthsimple Trade, an online discount broker with zero trading fees, for investors who prefer to be a bit more hands-on. And with creative investment options such as their Halal and Socially Responsible Investing portfolios, Wealthsimple has demonstrated that they care about what’s important to you.
Overall, Wealthsimple is a great option for just about anyone wanting to get started with long-term investing. If you aren’t interested in stock picking, but you know that investing needs to be part of your plan, Wealthsimple can be the way to go. With its adherence to time-tested principles, and your ability to use dollar cost averaging to your advantage, it makes sense to consider Wealthsimple for building wealth long-term.

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Have you always wanted to invest in the Canadian stock market, but had no idea where to start? You’ve come to the right place. In this article, I’ll show you everything you need to know about the basics of stock market investing.
Not only will you learn how to get into stocks, but I’ll share some tips from an expert and let you know the type of account you need, so that you can get started today. Are you ready? Let’s dive in!
Unlocking The Mysteries Of Stock Market Investing
Too many people make stock market investing more complicated than it needs to be. It’s as though investing is a great mystery, one that can only be solved by those with special insight and knowledge.
Thankfully, buying stocks doesn’t have to be a complex process. In fact, just about anyone can learn how to buy stocks with a little time and effort.
Getting Started
The first step is to open a brokerage account. Yes, it’s true that you need a broker in order to buy stocks.
The good news is that in 2018, you don’t need to visit a stock broker in person, call someone on the phone, or become engaged in a complicated transaction.
You can buy and sell stocks from the comfort of your living room, through an online discount broker. You don’t need very much money, either.
In many cases, it’s possible to open a brokerage account and start investing with as little as $100. Look for a reputable account online, and then open your account. Once you do that, you will be able to start buying stocks.
Online brokerage accounts are fairly easy to find. In Canada, there are no fewer than 12 leading discount brokerages vying for your investment dollar.
While you can check all of them out in this recent review of Canadian Online Brokerages, my top choice for online brokerage in 2018 is Questrade.
I’ve included more information on Questrade further down, along with an exclusive new account offer for MapleMoney readers, but first let’s take a closer look at what stock market investing is all about.
How Do Stocks Work?
If you’re new to the world of stock market investing, you may be wondering what a stock is in the first place.
Stocks, also referred to as shares, represent ownership in a corporation. They give the owner of the stock, also known as the shareholder, a claim on company assets and earnings. They can also grant the shareholder other benefits, such as voting rights.
To use a basic example, if a company issued 1000 shares, and you purchased 100, you would hold a 10% ownership of that company.
Of course, large corporations such as Google, or Royal Bank, are worth billions of dollars, with outstanding shares numbered in the hundreds of millions, so 100 shares would be a drop in the bucket when it comes to your claim on ownership.
But 100 shares is significant inside an individual portfolio, and can provide an investor with an opportunity for strong growth over the long term.
Types Of Stock
Corporations issue two main types of stock: common and preferred. Each type can be divided into several different classes, but these are the main categories.
Common shares provide the owner with voting rights at shareholder meetings, while preferred shareholders have a preferred claim on earnings, such as dividends. Preferred shareholders also have priority if the corporation were to go bankrupt.
Common shares are, exactly as they sound, more common.
What Is An ETF?
Exchange Traded Funds (ETFs) have become incredibly popular in recent years, and just might be the best way to get started with stock investing.
ETFs are groups of stocks that track the performance of a particular stock market index. With ETFs, Instead of trying to pick individual stocks, you receive the benefit of several stocks.
The benefit to a novice investor is that you don’t have to try and learn how to buy stocks before you get started. A solid ETF, particularly one like XIU or XIC that tracks a wide market, can be a great way to get started.
ETFs vs. Index Mutual Funds
At first glance, an ETF might seem similar to a mutual fund, in particular an index mutual fund, but there are some key differences.
While ETFs and index mutual funds both offer an indexable basket of securities, ETFs are more flexible than an index mutual fund, in that they can be traded just like an individual stock.
They also lack the management fees (MER’s) of a mutual fund, although most brokers do charge a trading fee on ETFs. Depending on your strategy, ETFs can be advantageous to index mutual funds.
Because of their simplicity, ETFs may also be the best way to get started with stock investing. Once you are more comfortable, you can move forward and learn how to buy individual stocks.
How To Choose Stocks
Choosing individual stocks for your portfolio begins with research, and lots of it.
To start, get as much information as you can on the companies you are interested in, learning about how they are run, as well as the potential they have for future growth.
Also, consider whether or not the stocks you choose are a good value. There are many different ways to evaluate stocks, and you can learn them and then apply them.
The important thing is to get started. An ETF can help you get started with investing, and start earning compounding returns, while you learn the ins and outs of how to buy individual stocks.
Make It Automatic
No matter how you choose to invest, or where you put your money, one of the best things you can do is to make it automatic.
You want to make sure that you invest regularly, since that is a good way to make sure that you are earning better returns over time.
Decide how much money you can invest each month, and have the money automatically withdrawn from your bank account and used to invest in shares of an ETF or a particular stock.
This investing technique is known as dollar cost averaging, and it’s used by investors of all experience levels not only for convenience, but to enhance investment returns over the long term. Here’s how it works.
What Is Dollar Cost Averaging?
Dollar Cost Averaging (DCA) involves the purchase of investments in smaller amounts on a regular schedule, ie. monthly, bi-weekly, rather than in lump sums, less frequently.
Automating the purchase of investments removes the need for an investor to try timing the market, as over the long term the investments will be purchased at a lower average price. This is where the true value of dollar cost averaging lies.
With dollar cost averaging, you can start small. As you earn more money, and learn more about investing in stocks, you can increase your contributions, as well as start finding other stock investments that will help you reach your financial goals.
A Quick Look At Questrade
As I mentioned near the beginning of this article, Questrade is the online broker that I use personally, and I hold both a Tax-Free Savings Account (TFSA) and non-registered account with them.
In short, I love Questrade for their low overall fees and ETF accessibility. As you’ll learn a bit later, one of the most important aspects of investing is to keep your costs in check.
When buying stocks, high fees will diminish your returns over the long run. A single transaction may not seem that expensive, but over time, the fees will add up.
Low Fee Stock Trades
Questrade allows you to buy stocks for as little as $4.95 per trade. Currently, it’s the lowest price you’ll find anywhere, with some of the competition charging as high as $9.99 per trade.
No Commission ETFs
Questrade actually waives the trading fee on ETF purchases, an offer only one other competitor (Virtual Brokers) can match. This alone make ETFs an attractive alternative to more traditional products, such as mutual funds.
In addition to Questrades low cost advantage, MapleMoney readers can benefit by using my Questrade exclusive link, and earn $50 in free trades by signing up here. If you’re serious about buying stocks, it’s a great way to get started.
As I mentioned previously, there are several other low-cost brokerages in Canada, including offerings from all of Canada’s Big Banks. Scotia iTrade is a good example of a discount brokerage offering from a major bank.
Regardless of where you choose to open your account, as long as you have the necessary identification, and can provide your bank account information for transfers of money, it’s possible for you to get started trading stocks.
Alternatives to Using A Discount Brokerage
A discount brokerage is the easiest way to start buying stocks. But it is a truly do-it-yourself option. The account holder is fully responsible for all of the decision making, as well as doing the necessary research.
Of course, not everyone is interested in a self-directed approach, and for those folks, there are other options available.
Full Service Investment Advisor
You can buy stocks through a full-service advisor. One advantage to this approach is being able to receive expert advice on your investments.
As the investor, you will have the final say on any trades that are made, but you have someone you can consult with prior to placing trades.
Not only that, but an Investment Advisor will possess the technical knowledge to manage the account administration on your behalf.
The downside is that it is a more expensive way of doing things. Not only will you incur higher trading fees, but your advisor will expect compensation for the advice that they are providing.
You will need to decide if the relationship and advice capability is worth the trade off of higher fees, but know that the option is available.
Portfolio Managers
Many banks and investment firms will employee teams of portfolio managers. These individuals cater to higher net worth clients, and often provide a broad range of additional services, such as tax & estate planning.
Portfolio managers often act as discretionary managers. This means that while the investment objectives are established together, the client gives full control of the day-to-day investment decisions to the portfolio manager.
While portfolio managers will still charge a fee for their services, by using the economies of scale, they can often reduce the cost for the investor.
Similar to a full service investment advisor, they also bring a wealth of expertise, which can be of benefit.
That said, if you lack the amount of investable assets to qualify, or you prefer to remain involved with the day to day decision making, a portfolio manager may not the best option for you.
Key Definitions To Know
When you first get into buying and selling stocks, you may find yourself overwhelmed by the terminology. It is a new world you’re venturing into, after all.
To help you out, I’ve provided you with a few key terms you’ll want to become familiar with:
Common Shares
Common shares represent partial ownership in a corporation. In addition to earning shares of company profits, holders of common stock are given voting rights at shareholder meetings, where they have a voice in matters of corporate leadership and policy.
Preferred Shares
Holders of preferred shares are the first to receive company earnings. For example, dividends are first paid out to preferred shareholders, and then to common shareholders. Preferred shareholders do not have voting rights, however.
Bid and Ask Price
The bid price of a stock or ETF is the highest price that a prospective buyer is willing to pay, while the ask price is the lowest acceptable price for a prospective seller. Depending on how many shares are being offered at the bid or ask price, some of your order may be filled at a price other than the bid or ask.
Market Order
A market order is an order that is filled immediately at the current market price. The priority here is not the price itself, but the certainty that the shares will be purchased. It’s the most simple way to fill an order to buy or sell stock.
Stop Order
A stop order is an agreement to buy or sell a stock when it reaches a specific price. When it does, it becomes a market order, and is filled.
For example, if a stock in ABC company is currently trading at 5.00 per share, you may place a stop order to buy the stock when it reaches $4.75/share. This doesn’t mean that you will get the stock at $4.75/share, just that the market order will be triggered at $4.75.
Limit Order
A limit order differs from a stop order in that the investor sets the minimum or maximum price that they are willing to buy or sell shares. Unlike stop orders, limit orders do not become market orders.
This guarantees the investor that they will realize only their targeted price or better. Depending on the broker, there can be an additional cost to placing a limit order.
Margin Trading
Buying on margin is the practice of using funds borrowed from the investment firm, to invest. This is considered leveraging, as the client is investing money they currently don’t have.
While margin trading can provide investors with the opportunity to multiply their returns, potential losses are also compounded, making margin trading a high risk activity. As such, margin trading is not suitable for the novice investor.
Summary
Stock market investing can be intimidating for beginners. My hope is that this article has provided you with everything you need to get started, and helped you decide which online brokerage account will best meet your needs.
In closing, I’d like to leave you with an additional resource. The following episode is from the MapleMoney Show, my weekly podcast. My guest is John Robertson, a personal finance blogger and author of the book, The Value Of Simple. John is a great resource for anyone who’s new to investing.
In addition to our interview, John has a course specifically for investors, which you can access here. Click play to hear John’s advice on investing for beginners.

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If you’re anything like me, then you have financial and bank accounts at multiple locations. Keeping track of all of these accounts can be cumbersome and annoying. Personal Capital lets you keep track of all of your accounts in one place, making it easy to track your net worth and investments. But is Personal Capital available in Canada? And if not, what is the best Canadian alternative?
What is Personal Capital?
Personal Capital is a wealth management service that also offers a free financial dashboard. Founded in 2009 and headquartered in San Carlos, California, Personal Capital currently has over 2 million users. But it’s important to note that their users primarily take advantage of the free financial dashboard.
The financial dashboard is a combination of a budgeting app, net worth tracker, and investment tool. You can set up a free account and then link your existing financial and bank accounts (investment, chequing, savings, credit card, employer-sponsored retirement plans) to your dashboard. The free service also enables you to use their investment checkup tool to analyze your investment accounts.
Personal Capital focuses on retirement planning. They have tools to help ensure that your financial preparedness for retirement.
The other part of Personal Capital is its wealth management services. To access these, you must have a minimum of $100,000 in investments. The wealth management services are essentially a robo-advisor with live online support from a financial advisor 24/7. When you sign up for the premium service, you are assigned 2 financial advisors for your portfolio.
These advisors will help you create a portfolio based on your preferences and financial goals.
The management fee for the premium service is 0.89%, which is higher than most Canadian robo-advisors.
Is Personal Capital Available in Canada?
Unfortunately, no Personal Capital is not available to Canadian investors, and they have no current plans to expand to Canada either. To access their services (free or paid), you need to be a US citizen or permanent resident at least 18 years of age.
Canadian Alternative to Personal Capital
There are two parts to Personal Capital, the wealth management services and the free financial dashboard. Because the free dashboard is the most popular part of the company, that’s the focus of this article. But if you are looking for more information on Canadian robo-advisors, here is where you can find it. And I would highly suggest looking into Wealthsimple.
Even though Personal Capital is not available in Canada, I would argue that Canada has a better free alternative in Wealthica.
Wealthica was founded in 2015 in Montreal by Martin Leclair and Simon Boulet. It is a platform that lets you keep and track all of your investment information in one place. You can link to an unlimited number of supported institutions, and there are currently more than 100 supported institutions.
There are no ads with Wealthica, and they offer bank-level security while updating and syncing your investment information daily.
Wealthica Features
Secure – Wealthica uses 2-factor identification and bank-level security. And all of your information is stored within Canada.
Analyze & track fees – the platform makes it easy to analyze and track your fees and how they affect your investment’s overall performance over time. Evaluating fees is an essential feature as it’s difficult to track the impact of fees through most investment platforms.
Family tracking – with Wealthica you can create groups and a family online dashboard. This feature makes it easy to track your family’s net worth. You also can add notes, reminders, and milestones.
Consolidated transactions – have all your investments in one place, preventing the need to log into multiple accounts to track your net worth progress and transactions.
Share with your advisors – you have the option to share your information with your financial advisors keeping all your data in one place.
Web and app platforms – Wealthica is available on desktop, but they also have a highly rated (4.7 stars in the Apple app store) app.
Pricing – the best part about Wealthica is the amount of usability offered under their free-forever plan. With their free-forever plan, you can track your net worth and investments all in one place. And monitoring your information is easy through their platforms with the number of different graphs and visuals available. But you can pay a little extra ($5.95/month) to add the Google spreadsheet export or a bit more ($15.95/month) for 3rd party add-ons like Wealthscope.
How to Sign Up For Wealthica
Signing up for Wealthica is an easy 3 step process:
Sign up for your free account
Link your investment accounts
Daily syncing of your information.
Wealthica vs. Personal Capital
When it comes to Personal Capital’s free financial dashboard, Wealthica is a superior Canadian alternative.
The founders of Wealthica created it from something they were already using themselves. Because Personal Capital has a premium upgrade, maybe the only purpose of their free version is to feed clients into their paid wealth management services.
Wealthica makes its money by selling its API to other fintech companies and offering other upgrades. This is a welcome relief for the user – no worries about high-pressure sales here.
Where Wealthica falls short in its comparison to Personal Capital is on the robo-advisor side of things. If this is what you are looking for, then working with one of Canada’s robo-advisors and then linking your account to the Wealthica dashboard is a good alternative.
The benefit of this alternative is that Canadian robo-advisors charge fees much lower than Personal Capital’s fees. So with a little work as a Canadian, you can work with a superior product to the popular Personal Capital.

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January 14, 2021 | GretchenAdd to my favorites

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These Sweet & Snuggly Kids’ Sheets are so cute!

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January 14, 2021 | GretchenAdd to my favorites

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Stock up on baby and kid’s clothes with this huge winter clearance event at Carter’s!

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January 14, 2021 | GretchenAdd to my favorites

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Don’t miss this hot deal on this Taotronics Massage Gun!

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Need a new backpack? Get these Jansport Backpacks for just $16.99!

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