In this episode, the team digs into the newly updated 2025 edition of The Wealthy Barber — Dave Chilton’s iconic Canadian personal finance book that helped shape millions of financial journeys. Ben, Dan, and Ben walk through the biggest lessons Dave has reworked for a world of high housing costs, social-media-fueled spending pressure, new tax-sheltered accounts, and the ever-present noise of investing advice. This discussion explores why the book remains so effective: it blends timeless principles with approachable storytelling, humor, and deeply practical guidance. The conversation also highlights Dave’s real-world insights from reviewing thousands of personal financial situations across Canada. You’ll hear how the book explains foundational habits like paying yourself first, why simple investing beats stock picking, how renters can build wealth, and why understanding your own spending is the key to unlocking both financial progress and happiness. Whether you’re brand new to money or a seasoned investor, the updated lessons hit harder in 2025 than ever before.
Key Points From This Episode:
(0:04) Introduction — recording early and setting up a deep dive into the updated Wealthy Barber.
(0:53) Why the new 2025 edition lands so well: humor, modern references, and timeless lessons.
(1:30) Dave Chilton’s real-world insight from reviewing thousands of Canadians’ financial situations.
(2:23) Why the storytelling works — characters, humor, and accessible teaching.
(3:45) Inside the narrative: Roy the barber, Matt, Maddie, Jess, Kyle, and the barbershop regulars.
(7:53) Lesson 1: “You can do this” — personal finance isn’t about math, it’s about simple principles.
(12:08) Lesson 2: Save 10% and pay yourself first — habit beats theory, compounding does the rest.
(14:29) Why saving is hard today: algorithms, FOMO, lifestyle creep, and rising costs.
(16:57) The behavioral case for saving early, even if economists say otherwise.
(18:52) Lesson 3: Be an owner, not a loaner — stocks vs. bonds and the engine of human ingenuity.
(22:49) The investor’s paradox — the less you think you know, the better you invest.
(24:05) Why indexing wins: skewed stock returns and the impossibility of picking winners.
(27:49) How investing has changed since 1989 — indexing is now widely accessible.
(28:18) “The world feels scary today…” — the 1847 quote showing it always feels that way.
(34:03) RRSP vs. TFSA — identical outcomes at equal tax rates, and why RRSPs shine when taxed lower later.
(39:12) Debunking the RRSP “tax bomb” — why high earners still benefit most.
(42:06) Lesson 4: Housing — the four levers to buy today (cheaper homes, <20% down, 30-year amortization, FHSA/HBP).
(46:34) Why today’s young buyers need new strategies, not 1980s nostalgia.
(48:02) Longer amortizations: counterintuitive but often financially sound.
(49:05) Leverage vs. psychology — why borrowing to invest feels scary even when the math matches.
(52:36) Renting isn’t throwing money away — disciplined renters can match homeowner wealth.
(53:51) The hidden costs of owning — repairs, trees, chimneys, and constant surprises.
(55:44) The Canadian stigma around renting — and why it’s undeserved.
(56:42) Lesson 5: Spending — “faulty brain wiring,” social pressure, and unconscious habits.
(1:00:46) The multi-month spending summary — tedious but life-changing for both finances and happiness.
(1:02:43) Joy units per dollar — reallocating spending to maximize happiness.
(1:03:47) Practical rules: delay big purchases, beware car costs, indulge selectively, and remember “$1 saved = $2 earned.”
Read The Transcript:
Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from three Canadians. We are hosted by me, Benjamin Felix, Chief Investment Officer, Dan Bertolotti, Portfolio Manager, and Ben Wilson, Head of M&A at PWL Capital.
Dan Bortolotti: Good to be back.
Ben Felix: Welcome to episode 387. I do want to say up at the top here that we are recording this on November 17th, which is about a month before the episode is actually set to release. We usually record a week in advance.
Hopefully, the world hasn't changed too much over the month since we recorded. Today, we're going to discuss the main lessons from the 2025 edition of The Wealthy Barber, which is a classic Canadian personal finance book that Dan, I know you and I have both read the 2025 edition. Ben, have you read it yet?
Ben Wilson: I haven't read it yet, but I look forward to reading it soon.
Ben Felix: It's a good book. Many Canadians have read the original and Dave Chilton, the author, has gone through and fully updated the book, including lots of references to TikTok and ChatGPT, kind of funny, and the content, of course.
We had Dave on in episode 370 of this podcast where we talked about the original book. We talked about a few other things. We talked about what's changed since he wrote that book.
All of those changes, of course, are reflected in the new version of the book. I have a bunch of notes, basically, just what I thought were the most important points from the book and we're going to rip through those. Before we jump in there, do you guys have anything else to add?
Dan Bortolotti: I barely remember reading the first book way back in the early 90s, but a lot of the insights in the book are pretty refreshing. It's not just kind of the cliche personal finance stuff that we hear all the time from everyone. I think what really shines through in this book is I'm pretty sure Dave has seen inside of more people's personal finances than almost anyone.
My understanding is he has tons of people who send him their information and ask for help. He's got so much real-world insight into where people are doing well, where people are going wrong. The advice rings so authentic and so real and not just somebody sitting at home who hasn't actually talked to an investor or anyone in 10 years. It's very fresh. That's what really jumped out when I read it.
Ben Felix: That's the thing with Dave. He's a great writer and he's super funny. He had John Campbell on his podcast.
I don't know if that episode is out yet. Hopefully, I'm not spoiling something that he didn't want people to know. I doubt it though.
He introduced John Campbell by naming one of his super technical economics textbooks and then Dave followed that up with, which as we all know, was later turned into a musical. John thought that was pretty fun. Anyway, Dave has a great sense of humor and that shows up in his writing in this book.
He is like a mega personal finance nerd. He loves diving into the weeds as much as we do on this stuff. He's just able to write about it in a way that's super casual. I don't know.
Dan Bortolotti: I think that's exactly the other thing. He's deceptive because you read it and it's so conversational and it's funny and he keeps it very simple for a relative beginner audience. There's a lot going on under the surface there and that if he comes up with some say counterintuitive advice, it's because he's drilled really deeply into the math on it.
He doesn't share that in the book, but you can trust that if he says something that's a little bit unconventional, it's based on a lot of valuable research. That's a really important thing to remember as well. He's not just a good communicator.
He's also a really good analyst. That's right.
Ben Wilson: It's great evergreen content that applies to such a broad diverse range of people in Canada. It's great for anybody to listen to.
Ben Felix: I'm not going to spoil the notes I have here. We'll just jump into what I have noted down here for what would make sense to talk about. To reiterate, The Wealthy Barber is a classic Canadian personal finance book.
Cameron even credits it with shaping his direction in the financial services industry. When he originally read it, it was first published in 1989. The book sold over 2 million copies in Canada and Dave has come out with a fully updated 2025 edition, which is, as Dan and I were just saying, full of just top-notch personal finance advice on investing, spending, estate planning and insurance and a bunch of other little tidbits too.
I've read the book twice now. Once because he sent me an advanced copy to write a whatever, the thing of the blurb, the thing that you write in the back cover. Somebody gets to be on the front cover.
Mine was on the back cover. I read it quickly once. I read it in depth a second time to write the notes for this discussion.
I do want to say upfront that I'm not affiliated in any way with Dave or his company other than us being sort of buddies. I will acknowledge that I may be a little bit biased in how much I am praising the book because I am mentioned in the book, or at least my YouTube channel is, and my testimonial or whatever you call it is on the back cover. Bit of a humble brag there, but it's pretty cool, I think.
I'm okay with a humble bragging about it. I did mean what I wrote on the back cover of the book, that this is the best and most approachable introduction to personal finance that I've ever read. I think it's a great read for anyone.
I enjoyed reading it. I'm a pretty big personal finance nerd and there was great stuff in there that was a good refresher or a good way to think about something that I hadn't considered before. I think it's a great gift.
This is coming out near the end of the year. If people are looking for a gift to get for someone that they want to share good financial planning principles with, I think this is a great tool for that. Or you can just send them this episode, I guess, as we kind of cover the main points.
But no, you should also buy the book. Sorry Dave, if we reduce your sales. I suspect we'll have the opposite effect though.
Okay, so something that is really cool about this book is the way that Dave wrote it. I think this is probably why the first version was such a hit as well. It's written as kind of a story where there's character development throughout the book.
There are a bunch of unique personalities that you kind of get to know. There's lots of dry humor, which Dave is so good at. It starts out with a Canadian couple, Matt and Maddie, who decide that they need to learn more about personal finance.
They go to Matt's parents and they're like, guys, you seem to have it figured out. We want to learn about personal finance. Where should we start?
Matt's parents refer them to Roy, who we find out is a pretty financially successful guy. He's a barber, the local barber. He doesn't have a super high income.
He didn't get a big inheritance, but he's quite well off. He's got a nice house in the lake, I think, whatever, drives a nice car, all that kind of stuff. It also turns out that Roy is a really good personal finance teacher.
I'm pretty sure Roy is Dave. I don't know. Or at least there's a lot of similarities between Dave and Roy.
Roy's helped tons of people over the years, because people hear that, hey, this barber is really knowledgeable about personal finance. So they seek him out and say, we want to learn. Then he takes time to deliver a bunch of lessons to people.
That's kind of the setup. Then the book follows Matt and Maddie's visits with – Actually, I don't think Maddie shows up in any of the visits. No, I don't think so.
She's mentioned, but I don't think she actually comes to the barber shop. Matt goes to the barber shop and he's joined by his overspending, but successful and intelligent entrepreneur sister, Jess. Matt's best friend, Kyle, also comes.
He's often there for comedic effect, just the way he's treated in the book and characterized as kind of dumb, but curious. Then there's a guy, Sorov. I don't know if that's the right pronunciation.
He's a newcomer to Canada and he lives in one of Roy's apartment buildings. They're all there for the lessons. Then there are some of Roy's regulars who hang out in the barber shop and they've all got their own characters.
It's a neat way to write a personal finance book. I do think that writing style, which is like, it's conversational. There's a whole bunch of back and forth on questions.
There's all these little jokes, but they're all doing something to elicit important details. The way that Dave did that just makes it super, super approachable for anyone. Okay.
That's kind of the background on why I thought the writing style was good, but I do want to jump into the main lessons. Any thoughts, guys?
Ben Wilson: I think it's important to note, it's written that way so that it's relatable. There's not special magic into personal finance. If you learn and understand, you can start and it's better to do something.
The barber personality is a perfect example. That's traditionally not someone you would view as someone with wealth, but if you take the right steps and build towards your own wealth, you can do it. That's a pretty cool way to frame the concept of personal finance.
Dan Bortolotti: I think the extended cast of characters is another thing that is a little different in this version. I don't recall if that was the case in earlier versions. I don't think so.
I think it was just Roy. It's a little bit interesting because the other characters in the barbershop have a little different perspective than Roy. Sometimes they chime in with their perspective and Roy says, you know, I agree with you on one sense, but I would phrase it more like this.
It obviously works really well because presumably the reader is having similar sorts of conversations in their own head and it gives them a chance to bring up some potential objections and then address them.
Ben Felix: It's a really clever way to have written the book. It's honestly brilliant. Yeah, they do have different perspectives.
One of the guys, James, who's one of the regulars in the barbershop, he's a former financial advisor who I think became then a real estate agent, but he's got some super strong opinions on certain things and so he'll kind of jump in and interrupt Roy and say what his strong opinion is and then Roy will push back on that. But that back and forth really creates a really interesting way to bring forward information without the author, without Dave having to say like, here's my opinion. It's just like, here's a bunch of different perspectives on this.
I like that. Anyway, the main objective of this episode is to try and bring to the surface the main lessons from the book. And again, sorry, Dave, if this hurts your book sales, but I suspect it'll actually have the opposite effect hopefully.
I do hope people will read the book because there is stuff that we just couldn't fit into a podcast episode and it's honestly a joy to read. The first lesson imparted by Roy, which Ben already basically said in his own words is, you can do this. There is absolutely nothing we're going to cover that you're not capable of fully understanding and implementing successfully.
You can start managing your own money very well quite soon. Because this group of people that's coming into the barbershop to learn, Roy recognizes that they don't know anything about personal finance and that they may be intimidated. And I think for a lot of people, that is a huge lesson.
Finance and numbers more generally can be pretty intimidating for a lot of people. I know people like that who just know I don't want anything to do with math, but becoming good at managing your finances is not a mathematical endeavor. I think that's something that if people understand that, then they'll be more open to learning about this stuff.
As Roy says in that first conversation with this group of his students, I guess we can call them, none of the important financial planning concepts are complex. I think that's a super important point. The financial industry tends to create complex financial products that tend to benefit the company selling the product, but ultimately make the consumers of the product worse off due to things like high embedded fees and costs.
I think Roy is absolutely correct that smart investing in financial planning is easy to understand. It should be easy to understand. It's not always easy to execute because human psychology can get in the way, but it should be easy to understand.
If you can't understand an investment product or a financial planning strategy, there's a really good chance that you should just avoid it altogether. That's the first lesson from Roy.
Dan Bortolotti: I think that that sort of you can do this message is even more important now than in the earlier edition of the book, just because the audience for the book is clearly intended to be younger people. It's just so much more difficult for young people to have success in these areas than it was when that first edition came out way back when. I think there's probably fewer people going in with a lot of confidence and they kind of need that encouragement right at the beginning. It's a good way to set the tone, I think, for the book.
Ben Wilson: You're better off to do something rather than nothing. The more you defer the decision, the harder it's going to be to catch up. The earlier you start, the better you're going to be as an investor.
Ben Felix: Did you just read ahead of the notes and you're just saying the stuff that I'm going to say in a minute?
Ben Wilson: No. No, I did not.
Ben Felix: Because that's what you're doing.
Ben Wilson: Not trying to ruin your thunder.
Ben Felix: Yeah, that comes up in a second. I think it's safe to say and a good thing for people to take away that if you can't understand an investment product or a planning strategy, you should just avoid it. I think that's the main takeaway from the first lesson and that you can do this.
In the next conversation, Roy introduces his golden rule, which is related to what you were just saying, Ben, which is that you should save and invest at least 10% of your net income for the future. Now that rule is powerful due to the nature of compounding, which again, that's what Ben, you were just mentioning. Saving and investing consistently over time eventually results in the returns from your investments far exceeding your ability to save.
I'm going to make a chart illustrating that, that we can put in the video. That's compounding though. That compounding is a tool that's super, super powerful and also poorly understood.
It's poorly understood because humans are just not wired to process exponential growth, which is what compounding over time results in. Now, if that seems like basic advice, I mean, it is kind of basic advice, but Roy explains that sure, saving 10% of your income is basic advice, but to be truly useful, it has to be paired with the second rule. According to Roy, the three most important words in personal finance, which is pay yourself first.
The premise there is that saving, so we say, okay, you want to save 10% of your net income, doing that is hard. Putting money away for your future self feels like a bit of a stranger, is competing with spending on your present self, who's dealing with immediate needs and wants and a cost of living that's increasing and the addiction to spending that a lot of people struggle with and just our innate desire to keep up with people around us, which often results in spending to get the nicer car, the nicer clothes or whatever, nicer house, nicer vacation.
Then not to mention all the businesses who are aware of our psychological shortcomings when it comes to spending and do everything that they can to influence us to spend our money on their products and services. It gets tough out there.
Dan Bortolotti: Yeah. There's another place where I think it's more difficult today. There've always been marketers who've been trying to get a share of your money, but just since the kind of post social media era, I think it's just the harder and harder.
There's way more FOMO. There's way more consumption in your face that other people seem to be enjoying that puts more pressure on you to spend. He does a nice job of addressing that part of it as well.
Ben Felix: That's tough. There's algorithms fine-tuned to your specific preferences trying to get you to spend money. It's genuinely tough.
The recommendation from Roy here is to pay yourself first, to put a portion of your money into long-term investments or savings for some other short or medium term goal before you have a chance to spend it. Just take away the temptation. Take the dollars out of your cashflow, out of your bank account.
Of course, you have to avoid going into debt as well, which is a whole other issue, but paying yourself first puts you in a good position to save and not give into the temptation to spend. Now, people will hear that, and in the book, there's a whole discussion about this among the cast of characters that, if we're going to take 10% of your income and put it away, so you're not going to spend it right now, people will look at that and say, well, geez, where am I going to find 10% of my net income that I can just do away with? Everybody feels like their budget is tight.
Everyone feels like they're struggling a little bit. Where's it going to come from? Roy explains that it will seem difficult to do, but once you start, you realize pretty quickly that a lot of your spending was on stuff that you didn't really need.
As Roy concludes this lesson, Sorov chimes in to summarize save first, spend the rest good, spend first, save the rest bad, which comes back to that idea of pay yourself first. Now, I do feel compelled, and there was a whole discussion. I use that actually pay yourself first as one of the most important quotes in investing that we did as a topic a while ago.
A bunch of listeners pointed this out, and I do feel compelled to mention it. Many economists would disagree with this advice. It could make sense to save less early on in life and more later when your income is higher.
It could also make sense to save more or less in a given year depending on your income and spending needs in that year, which implies spending first and saving the rest. That's like a utility maximization approach to saving. I think that kind of thing ideally comes out in proper long-term financial planning as opposed to a rule of thumb.
I do also think that as a general rule to get people engaged with long-term thinking, saving, and investing, pay yourself first as a concept at a rate of around 10% of your net income is a pretty solid foundation. It's certainly better than not saving at all. I think as people adjust to having a little less cash in their budget, it does build that reflex to carefully consider the difference between spending needs and wants, which most people probably don't do enough of.
There is a whole section that I'll come back to in the book that I'll come back to later where Roy has a bunch of great wisdom about spending.
Dan Bortolotti: I think it's also important that the keyword there is probably first in the sense that what he's really trying to emphasize is the importance of regular payroll savings, paying yourself off the top, and not falling into this trap of, I will save whatever's left at the end of the month because we all know that that doesn't usually work out. You're right. It doesn't necessarily apply to everybody, but the idea of just trying to take as much as you can off your paycheck is a pretty valuable thing to do.
Surprising how many people don't do it, especially if you have matching programs and things like that with retirement savings plans at work, but still a good lesson.
Ben Wilson: This section or this lesson is less about the math, but more about behavior change. It's tough to save 10% of your income, but if you build a habit, changing that behavior can set you up for success. The economist analogy, probably true from the utility model, but that's focused on the math of the equation, not so much the behavior. The behavior part is a much more complex animal to figure out.
Ben Felix: That's the biggest problem with utility maximization advice is that if you don't build that saving habit early on, it can be hard to incorporate it later. I agree with that. There's a major behavioral.
Ben Wilson: I'm sure I've shared this before. My dad was a financial advisor and he taught me from when I was very young and I'm teaching my kids the same to save half of everything that they earn or they're gifted. Not everybody has that luxury maybe, but if you build that habit early, saving 50% once you're earning income is a lot more difficult, but if you build the habit, saving 10% becomes easier. I used to say 50% when I was a teenager, but saving 10% is a lot easier as an adult.
Ben Felix: I think you have mentioned that before and I'm pretty sure in a YouTube comment, someone said that Ben Wilson should have said that his biggest financial mistake was spending 50% of his income when he was young.
Ben Wilson: I honestly don't regret it. I did things that I enjoyed. I don't feel like I held myself back.
One of those comments also said that these guys are nerds and probably didn't party in university and high school. That may not be true for everybody, but it was for me. I was not a party here and it wasn't because I was nerdy. I just never got into drinking at all. I didn't need to spend the money on booze.
Ben Felix: Yeah. I guess that helps. That is discussed in the book too about how a lot of people who are good savers don't feel like they're sacrificing anything.
They're just very intentional with their spending. Like I mentioned before, there's a whole section that we'll come to later on and how to think about maximizing the joy units per dollar of spending is how it's described in the book. Okay.
The next session with Roy covers investing. To start the lesson, Roy prompts the group to consider why investing is important. He just asks them that.
They do collectively offer a bunch of correct reasons, which include fighting off inflation, funding your future financial goals and harnessing the power of compounding. Roy offers up a nice catch phrase to explain what he thinks successful investing looks like. He says, be an owner, not a loner.
What he's doing here is drawing the distinction between stocks and bonds. Of course, we've talked in this podcast lots about asset allocation and how to choose the mix between stocks and bonds. Roy appears to be quite bullish on stocks, which is a fair position to take.
Stock, of course, is a piece of ownership in a business. While a bond is a loan to a company or government, in general, stocks are riskier and have higher expected returns than bonds. The expected return is literally the long-term you expect from investing in something.
Now, stocks and there's a whole part of the discussion where Roy walks through the economic logic of why stocks must have higher expected returns than bonds because they're riskier to own. With stocks, you're participating in the potential upside and downside of the financial performance of real businesses. Some businesses are going to do really well, while many do poorly in the long run.
Bonds are safer than stocks because they generally have fixed coupon rates. You get the same return whether the company's financial performance is unexpectedly good or bad. Even if it's really bad to the point where the company shuts down, bondholders often stand to recover some value while stockholders do not.
What Roy explains is that in the long run, stocks are a bet on human ingenuity. He says that being an owner, a stockholder, lets you participate in the ongoing human innovation that our whole economic system is based on. It is true that going back hundreds of years through all sorts of economic conditions, technological changes, all kinds of global turmoil and all kinds of crazy stuff has happened and long-term stock returns have been meaningfully positive.
The group is listening intently to Roy as he's talking about why being an owner, not a loaner is good, but they speak up and object because they're like, we don't know anything about stocks or the stock market. Kyle, Matt's best friend, who is a bit of a goof in the book, he explains that a bunch of his friends lost money picking stocks during COVID. He talks about one of his buddies picking Peloton during the COVID peak and then it came crashing back down to earth and he lost a huge portion of his investment.
Now Roy expected this. He was ready for the objection and he explains that you need no knowledge to invest successfully in the stock market. Then Roy even goes as far as saying that for 99% of people, more financial knowledge actually makes them worse, not better at investing.
That's a really interesting point. I don't know if it's 99% because there is some evidence that people with better financial education are better investors. If I were to generalize, Roy is probably right.
The average person with a little bit of financial knowledge is probably more dangerous than the average person with no financial knowledge.
Dan Bortolotti: I think you really have to qualify that one. This is something I've struggled with a lot. It's come up before like with the whole term couch potato investing, for example.
There's this implication that people who use a broadly diversified index strategy are just not smart enough to figure out the alternatives, when of course it's the opposite. It's not about ignorance, it's about humility. I get it.
He's doing it here because it's fun and it's approachable. That's why I used to use that language too, but I have found that for some audiences, it's not the right message. It does miss that nuance.
It's not about not knowing anything, it's about recognizing that you have no predictive power over the stock market, which is not the same thing.
Ben Wilson: I think that's a very good point. I've heard a lot of people critique the couch potato or passive investing strategy, thinking like, well, you're just picking the easy way out and you don't actually know where to get the returns, which is we know to not be true. More mistakes that we've seen over the years come from people trying to outsmart market uncertainty rather than just accepting that it's going to be where it's going to be and build a strategy around what you can control.
Ben Felix: I'm going to propose a change to something that's written in the book here. Jess, who's Matt's sister, she's a successful entrepreneur. She probably spends too much.
She's super sharp though. She decides that what Roy has described should be called the investor's paradox. The less you know, the better you do.
I would propose changing that to the investor's paradox. I don't know if it's still a paradox in that case though. I would propose changing that to the less you think you know, the better you do.
I think that comes back to the humility point where index investors, people who are not trying to beat the market are fully aware that they just don't have the information and can't have information to outperform. They're also probably aware of the evidence that people who do have that information don't tend to outperform. I think it's a fair point.
I think what the book is trying to caution against here is watching the financial media and reading financial statements and like you said, Dan, trying to do things that are predictive in nature. That's really the point that they're trying to get to here. I had that in my notes, that the reason that the more you know or the less you know, the better you do.
The reason that's true is that people do tend to sabotage their own returns by doing things like trading too much, trying to time the market, investing in attention grabbing stocks and those all lead to lower returns. Those are all symptoms of overconfidence, which probably comes with a little bit of knowledge, but not enough. I think successful investing, as we all know, requires really minimal investment knowledge.
I think it requires an understanding of principles, an understanding of evidence, but it does not require you to be able to pick stocks or whatever, because buying all of the stocks, harnessing the market's information production is the most consistently successful investment strategy in history. It not only beats the vast majority of professional investors, fund managers and otherwise, but it also beats the vast majority of individual stocks. It's pretty incredible.
It's next to impossible to consistently separate winning and losing stocks before the fact, but it's not necessary to do that because all the stocks together, including the winners and the losers, you just take them all, have historically had more than enough return to propel most people successfully toward their long-term goals and outperform professional money managers and in aggregate, outperform most individual stocks.
As John Bogle has said, instead of finding the needles in the haystack, you just buy the haystack. Now the interesting thing, and the book does a really good job describing this point, the Bessem Binder point. We had Bessem Binder on our podcast, talking about the skewness in stock returns.
The approach of buying everything works well, because while lots of companies are losers in the long run, the few winners, the relatively few winners tend to win really, really big. This point is really interesting. The most you can lose in a stock is 100% of your investment, but when you win big, the winners can gain far more than that, far, far more than 100%, especially over the long term.
Now we can't identify those winners or losers before the fact, but because of that skewness, owning all of the stocks in the market means that you're always going to hold the big winners and you're always going to get the average return, which has tended to be pretty good. That skewness effect is also what makes owning the market such a difficult strategy to beat. Again, that's part of the explanation for why professional money managers consistently fail to deliver market beating returns.
The other reason, of course, being their high fees, especially here in Canada. We have a huge portion of our investment fund assets across the country in high fee actively managed funds that do aim to beat the market. Very few of them are successful, as we would expect.
An interesting point in the book is that Roy does admit that he at one time did invest in actively managed mutual funds, which I think is a nod to the original book, which did suggest doing that, but Roy eventually saw the light after underperforming consistently. Switched to indexing.
Dan Bortolotti: Let's remember too, in 1989, your options for indexing were extremely limited, as Ted Cadsby would remind us our previous guest. There were no ETFs. There may have been a small number of index funds later in the early 90s, but not in 1989.
From that point of view, the specific investment vehicles that he's recommending now are just fundamentally different from edition one.
Ben Felix: Big lesson here is that between the skewness and stock returns and the high fees charged by the managers trying to beat the market, trying to beat the market is a losing game. I think it gets even worse when you look at the fact that fund managers who have done well in the past, which are the ones that an investor who's hoping to find a good manager would probably allocate to, like, oh, this fund has done well. I'm going to invest in that one.
If you look at the data on this, those funds tend to be more likely to underperform than to outperform in the future. Past winners tend to go on to be losers, at least to kind of a three-year horizon. That's what the papers I've seen have looked at.
Finding a manager with a good recent track record is not only not sufficient to identify a future winner, but it counterintuitively may be counterproductive. Again, this all leads us back to the simple conclusion that requires little knowledge to simply buy the whole market, which can be accomplished with low cost index funds. Index funds are funds that just track a broad market index.
I mean, an index fund can track any index, but the ones we would be talking about are tracking a broad market index. A broad market index is a grouping of stocks that has been assembled to represent a stock market. Even then, okay, there are a whole bunch of indexes, which ones do you choose?
In Canada, we've talked about the asset allocation ETFs that we have here many times in this podcast. Those are single ETFs, single exchange traded funds, which give you access to a globally diversified portfolio of index ETFs. You're buying one thing, and you're getting this exposure to basically all of the indexes that you need to build a well diversified portfolio.
Roy in the book does suggest that those asset allocation ETFs are a good option for many people, which I would tend to agree with. Then we're there. It's like, okay, stocks have been good investments.
You want to be an owner, not a loaner. Everyone's like, okay, this is making sense. Then they kind of raise this point that, okay, that might have made sense in the past, but the future just looks perilous.
We've got global warming going on. We've got Russia and Ukraine. We've got majorly divisive politics all over the place.
Doesn't that all that make the outlook for the global economy weak, which maybe makes being an owner, being a stock investor, less compelling now than it's been in the past. Roy addresses this in a way that I absolutely love, and he was ready for it. He has a laminated quote on his counter that he pulls up.
I think this is huge because in financial markets, like many other areas, history does often rhyme. Roy pulls up this laminated newspaper article, and it says, it's a gloomy moment in history. Not in the lifetime of any man who reads this paper has there been such a grave and deep apprehension.
The United States is beset with racial, industrial, and commercial chaos, drifting we know not where, and Russia hangs like a storm cloud on the horizon. Of our troubles, no man can see an end. The group is like, yeah, stuff's bad right now.
They're all assuming this is like a current newspaper clipping. Roy explains that it's from Harper's Magazine in 1847. Fascinating, right?
You read it, and it's like, well, yeah, that sounds like what's happening right now. This is something that I learned pretty early on in my career that when you look around at the state of the world, it will always, always, always feel like right now, this moment is an unprecedented disaster unfolding before our eyes. It always feels like a particularly bad time to invest in the stock market, but it always feels that way. There's always something, always.
Ben Wilson: You often hear, "but this time feels different." We have never seen this specific event happen. It must have a different impact on the projected stock returns.
Dan Bortolotti: Yeah, and let's leave out World War II, the Great Depression. I mean, we've forgotten all about those things. It's interesting, but I think it's inevitable.
We all have a very kind of short-term bias. Everything that we're going through now feels like it's so much more important. It's a bit like that you've heard too, like when people complain about young people today, and they're not as wise as their elders.
And then you can find like quotes from 400 BC where philosophers are saying the exact same thing. So, I mean, people don't really change. We all seem to think of our life and times as though they're somehow unique in history and in the specifics, perhaps they are, but they're in the big picture. The problems are all the same.
Ben Wilson: It's fascinating how much human psychology impacts financial decisions. You can talk all about the math, but even just going back to your individual stock examples or the active approach, if you have a stock that you're holding that your grandfather gave you, or that has done really well, you may make a bad decision because you have an emotional attachment for some reason. And just there's so many different examples and biases that come into play that are obvious if you look at a textbook, but in practice, it's hard to actually navigate these things in reality as an individual investor.
Ben Felix: I do like the historical perspective for that kind of thing, or just the database perspective, but you're right, Ben, that doesn't always speak to everybody. The fact that there's always crazy stuff happening, it's like, yeah, that does indeed make investing risky. It's risky to invest right now.
It's always risky to invest, but the nature of that risk is why we expect to earn positive long-term returns.
Dan Bortolotti: It's also, I think, worth saying too that if we ever get to a period where an investor, or let's say a consensus of investors say, now is a great time to invest, it probably isn't. Because that to me, it just telegraphs a bubble. I mean, that's the kind of thing you say after consecutive years of double-digit returns, what could go wrong?
Now you're just blind to the risks. It's a bit ironic in that way too. Sometimes the best times to invest are the times that feel like the worst times to invest.
You will probably look back at that in hindsight and say, I'm glad that I invested at that time.
Ben Felix: Like you said, the opposite is probably true. When everyone's like, yeah, it's a great time to invest, what do we get? We get high asset prices, which lead to low implied expected returns.
You would expect to earn lower returns, but that's when people tend to want to invest. That risk is always there. Maybe the amount of risk that's being priced changes from time to time, but if there were no risk, or if everyone wanted to invest like in your example, Dan, we would expect to earn lower returns, not higher.
You feel it in your stomach. Nobody likes that feeling of, oh man, this crazy thing is happening right now. I don't want to invest, but that's part of earning positive expected returns.
We've gotten through index funds, the idea of expected returns being an owner, not a loaner. Then Roy goes on to explain Canadian account types, including the RRSP and the TFSA. RRSPs and TFSAs are like containers.
I like that. I think someone even said it's like a Tupperware that has special protective properties. It kind of does.
They're containers. They're not themselves investments. That's a common misconception among new investors that an RRSP is itself an investment or a TFSA is itself an investment.
They're containers inside which investments can be held. When you put money in or take money out, there are special properties, I guess, that get triggered with these types of accounts. The RRSP is a pre-tax savings account, meaning that contributions are made with pre-tax dollars.
The way that's implemented in practice is with a dollar for dollar tax deduction when you contribute to your RRSP. If you have $10,000 of RRSP contribution room and you contribute $10,000 to the account, you are able to deduct $10,000 from your taxable income in that year or in a future year if you chose to defer it. That's at the front end.
That makes the dollars that go in pre-tax. Then when you eventually withdraw from your RRSP, the withdrawal is fully taxable as income. You get a tax deduction when you put the money in.
You pay tax on the dollars as income when you take the money out. It is a way to defer income tax on those dollars. The TFSA is the inverse.
It's an after-tax savings account or a post-tax savings account, meaning that contributions are made with dollars you have already paid income tax on. Accordingly, there is no tax when you make a withdrawal from the TFSA. That's all pretty straightforward.
Listeners probably understand that. Roy offers the group an illustration comparing the two account types that I think everyone needs to understand. This is fundamental to understanding the RRSP versus TFSA trade-off.
There are other little bits and pieces, but this is a key, I think. This is one of the things I read in the book. It's like, yeah, I'm so glad he had this concept in there because I don't think it's illustrated enough.
The example he gives is, say you've got a 30% tax rate and you contribute $5,000 to an RRSP. In that example, $3,500 of those dollars are your after-tax dollars. $1,500 of those dollars are deferred income tax that you're able to put into the RRSP because of the nature of the account, because you're able to deduct the contribution from your income.
The RRSP is allowing you to invest those future tax dollars. It allows you to defer income tax. Now, if you invest those dollars, the $5,000 at 8% for 30 years, you have just over $50,000.
Then you withdraw it at the same 30% tax rate. You've now got just over $35,000. Okay.
We've got $35,000 after-tax. Now, let's go look at the TFSA. Same situation.
Only after-tax dollars can go into the TFSA. Following the $5,000 pre-tax RRSP contribution example, the TFSA only gets a $3,500 after-tax contribution because the TFSA does not offer the same tax deferral. Now, again, if we invest that for 30 years at 8%, you have just over $35,000.
Exactly the same dollar amount to the penny as the after-tax outcome for the RRSP. That example shows something important and often misunderstood. When your income tax rate is held constant, your after-tax dollars in both the RRSP and TFSA are both growing tax-free.
That's important because many people see the eventual tax bill on RRSP withdrawals and they think, wow, that was a bad deal. Look at all the tax I'm paying. The RRSP and the TFSA give you an identical after-tax outcome if your tax rate stays constant.
The where it gets even better for the RRSP is that most people don't have a constant income tax rate. It's common for people to have a higher tax rate while they're working and a lower tax rate in retirement. In that scenario, in the higher, now lower later tax rate scenario, the RRSP offers an advantage over the TFSA.
In the book, Kyle points out that pulling dollars out of your RRSP at a higher tax rate would effectively be a penalty for having used the RRSP rather than the TFSA. That is also true. It does point to one problem with the RRSP versus TFSA discussion, which is that we do not know what our future tax rate is going to be.
There is some uncertainty about the truly perfect optimal account choice today, but I think it's still possible, and Roy explains this in the book, that you can make sensible decisions. Like using the RRSP in years where your income is high relative to what you expected to be in retirement probably makes sense. Using the TFSA when it's low probably makes sense.
If you have a high enough income and a high enough savings rate, just max out both. That's a non-decision.
Dan Bortolotti: I hope that example has an impact. There's so many people still who we hear from who are convinced because of something they saw or read online that the RRSP is a scam. It's a ticking time bomb of taxes.
There's no question that there are places where it's not optimal. I wouldn't recommend it for people who are in entry-level jobs and in the lowest tax bracket. I get that.
For sure. But for a lot of people who are in their highest income earning years, even if they've already saved quite a bit in RSPs, probably still makes sense to continue using them. If not, then you have to look at what's the alternative.
Because TFSAs, especially for people who are high income earners, it's pretty easy to max at 7,000 a year. RRSP room is a lot greater than that. If you're making a very healthy income and you have 30 plus thousand dollars of RRSP room and you decide not to use it, what are you going to do with it?
Saving it in a non-registered account is probably not going to be superior. It's a message I think that still needs to hit home with a lot of investors.
Ben Felix: We did an episode years ago where we looked at how much higher would your tax rate have to be for the RRSP to be worse than having invested in a non-registered account. I'm totally going off memory here, but I believe it was 13% higher, 13 percentage points higher. Which like, if you're at the highest tax right now, that would have to assume that the future income tax rate goes up to- 66%.
Dan Bortolotti: Yeah. I suppose if you factored in old age security clawback, which is kind of effectively a 15% additional tax, that is possible.
Ben Felix: Within that specific income threshold though. It's tricky. One of the models that I love for thinking about this is that in that, so we've got $3,500 in the RRSP that's your after tax dollars and 1,500 that is deferred tax.
Assuming your tax rate stays constant, you basically have two TFSAs. One is yours, one is the government's. You've got $3,500 in your TFSA and $1,500 in the government's TFSA.
As soon as you want to take your dollars out, you have to give the government's back theirs. That future tax bill, yeah, it's big, but it's because you've been investing the government's money in a TFSA and it compounded just like your after tax dollars did.
Ben Wilson: I think the other thing to keep in mind is that income is not always linear in retirement either. People look at this, my income might be higher in retirement. Well, it might be, but there may be years where it's lower and you can choose to withdraw money in a year where your income is lower to play the tax game and manage your taxes effectively to kind of spread that over time.
At a certain point, you're forced to withdraw the minimum, but you have flexibility. You're not stuck in the RRSP. You can withdraw anytime.
It's just you pay tax when it comes out.
Ben Felix: Which is something we help clients do fairly often where we look at the future of their financial plan and we say, does it make sense to do some management of your RRSP withdrawals? Should we do some early on before the RRIF minimums kick in to manage your lifetime tax bill? We find that that doesn't always make sense, but there are definitely cases where a little bit of that prepayment of a bit of tax can make things look better overall.
So that's account types. Then the next thing Roy moves on to in his lessons is home ownership. So he first explains that it's critically important to consider the total cost of ownership when you're buying a house, not just the mortgage payment, but you've got to think about property taxes and the inevitable ongoing maintenance costs.
And not to mention the potential for the mortgage payment to increase if interest rates increase, which is an issue many Canadians have faced in recent history. Now, given the currently high property prices in Canada, like Dan, you mentioned earlier that the situation now is so much different than it was in 1989. This is one of the areas that I think Dave really focused on being materially different.
So Roy describes to his group of students four levers that they can pull. Now, he does say that these might require sacrifices. I mean, most of them are versions of sacrifices, but he offers these four levers that people can pull to make buying a house more of a possibility.
So the first one is buy a cheaper home. And that might be obvious, but I think it's honestly worth saying, like it's not necessary to buy a house that fits the maximum amount that the bank is willing to lend you. And smaller homes are going to cost less.
They're going to be easier to maintain. There are terms to describe spending so much in a house that you can't enjoy the rest of your life. One of them that many people I think have heard is house poor.
The other one, I don't know if Dave made this up or not, but the first time I heard it was from him, I heard it from him before I read it in the book. This term is cash stration, which is pretty darn funny. Now I would say that being house poor and being cash strated are both self-descriptive as states that most people would want to avoid and buying a smaller house helps to resolve that.
So the next levers, I'm not going to go through all of them in detail, but he talks about not stressing too much about having a 20% down payment. I think people in Canada worry about that because if you have below 20%, you have what is called a high ratio mortgage, which requires you to pay a CMHC premium, which is a premium for insurance that protects the lender in the case that you, the borrower default on your loan. It's basically like, oh, you can't put 20% down, you must be risky, therefore you must pay this insurance premium.
A lot of people that I've talked to, they get fixated on, I have to have 20% because I don't want to pay the CMHC premium. But the point that Roy makes in the book, Dave has nerded out on this super, super hard. There's this little comment in the book, but it's a ton of thought and wisdom behind it.
Those high ratio insured mortgages are actually a little bit less risky for the lender because they're offloading the risk of default onto CMHC. Because of that, the interest rate on insured mortgages will tend to be a little bit lower than the interest rate on an uninsured mortgage. Having a 10% down payment, yes, it triggers a CMHC premium, but it's also often going to lower your interest rate.
That's not necessarily going to completely offset the cost of the CMHC premium, but it will take some of that bite away. You have to save half as much for the down payment. Roy's point in the book, or Dave's point, I guess, don't stress too much about getting 20% to avoid that CMHC premium.
It's probably not as big of a deal as many people think, and you can buy a house much sooner. He also talks about using the FHSA, the first home savings account, and using the home buyer's plan, which is a program through the RRSP account. Those both increase the amount of savings you have available due to the income tax deductions gained from using those tools.
He also talks about taking out a mortgage with a 30-year amortization rather than the more common 25-year amortization. A longer amortization is going to lower the payments that you make. Donald Trump, I think, is trying to make a 50-year amortization loan down in the States.
See how that goes. He also talks about finding a partner before buying a home, which is a pretty sensible point. He also talks about living with your parents, and he acknowledges this is a bit controversial maybe, but he's like, you know, if you're going to save up for a down payment, live with your parents, if you can, while you're saving.
It just dramatically increases the amount that you can save. Paying off outstanding consumer debts was also an interesting one because the debt service ratios that the bank is going to use to evaluate how much you can borrow will look much more favorable if you have no other consumer debts. Then the last point he brings up is just find ways to earn more income, which again, may be obvious, but an interesting strategy to consider.
Dan Bortolotti: A lot of young people have kind of figured a lot of these out the hard way, like that they haven't necessarily been strategies that they've been proactively doing. It's just, they don't have a lot of other choice. I think you see more and more people living with their parents for longer, saving up a down payment.
I agree. I mean, it's pretty tough to save for a down payment when you're paying rent every month. And you know, the whole 30 year amortization versus, and you know, potentially 50 years in the States, like the instinct for someone like me is to look at that and say, wow, you know, you're just kind of condemning yourself to debt for way too long.
But I think you have to take a step back and say, what choice do people have now? Like who are we to judge and say, you know, in my day we paid off mortgages in 20 years, 25 years. Yeah.
But you know, nowadays when you have kids or young people who can realistically not purchase a home, that's less than, I don't know, 15, 20 times their annual income, they're not going to be able to pay it off any quicker than that. And maybe it does make sense for them to get into the market and start building up some equity. They might never actually need 30 to 50 years to pay it off, but just as a way of getting into the market and starting that process.
And then next time they refinance to maybe look at shortening the amortization period a little bit, if they can. I'm open-minded about these things. That's all I think we have to be.
Ben Felix: Something that gets missed in this discussion, and we talked about this, Dan, when we did one of our renting versus owning episodes together, people look at a loan and say, oh, a 30 year amortization, you're going to pay way more interest over the lifetime of the loan, which is true. But I think when you look at the full picture, yes, you're paying more interest, but you've also got more cashflow available. You may be able to invest more of your money in other assets.
When we look at amortizations in a renting versus owning analysis, owners look better with longer amortizations. Owning starts to look worse than renting. If you buy a house in cash, owning generally looks much worse than renting from a strictly financial perspective.
Having a paid for home would probably, that feels great, but strictly from a financial perspective, it looks terrible. The longer your amortization is, the better owning looks relative to renting. I think people look at only one side of that equation, well, you're going to pay way more interest with a 30 year amortization.
Yeah, but you're going to be better off. Leverage is a powerful tool. It adds some risk, sure.
I like the 30 year amortization point. I think it makes a lot of sense.
Dan Bortolotti: It's a really interesting way of looking at it, because using leverage to purchase a highly volatile asset that's marked to market every day, like stocks, can be really, really difficult behaviorally. I think we know from just watching the average person in Canada with a mortgage, people don't panic sell houses, leverage on an asset that you're living in, that you don't feel compelled to sell if it falls in price, can actually be a pretty good thing, as you've pointed out. Maybe long term, this is not the worst idea.
I would love to see some analysis of that, because I think the knee jerk reaction from most people will be, I wouldn't want to see my kids get into a 30 year mortgage or a longer term than that. Maybe they're just not looking at the whole picture.
Ben Wilson: The home ownership culture in Canada is so loaded and influenced by the boomer generation that did so well, or think that they did so well just based on the math. But there's a couple things here. The compounding of actual returns looks really good over time, but there's also a long period of time.
If they had money invested in stocks over that same period, would they have been better off? You'd have to run the math to check that. But even just the mortgage amortization that you're saying, Dan, compared to now, it was a different time.
Leverage is a very powerful tool that you can implement into your strategy, but you have to consider everything. Then you also mentioned this example where home ownership, if you buy in cash, looks a lot worse than if you have a mortgage, which is true. Leverage is powerful in cases where we've done the analysis and showed clients or investors, if you buy the house in cash, you have the ability to do so, that's a good decision behaviorally.
A separate decision would be, do you want to now take the money out or against the house to invest because that's a more tax-efficient way to borrow because the interest becomes tax deductible. Even though the math looks better, Dan, to your point, it feels different from an investor perspective. Take that $500,000 million and invest in a stock portfolio.
Even though the balance sheet is identical, the psychological impact is different. You're watching your actual liquid assets jump up and down, whereas someone with a traditional mortgage is like, no, this isn't a big deal. I'll keep the mortgage in play as long as I need to.
But as soon as it flips to that mortgage is being invested in the stock market, it becomes scary.
Ben Felix: Even if it's the exact same thing, that's a financial planning strategy called the debt swap that you're describing, Ben. In that scenario, the person had a million-dollar mortgage and they had a million dollars in stocks, but the million-dollar mortgage was on their house. If we tell them, hey, you should pay that mortgage off and then re-borrow to invest in the stocks, that makes the interest on the loan tax deductible.
Even though they end up in the exact same position that they were before, people often get super stressed out when you're like, okay, now we're going to borrow against the house to invest in stocks, even though they already had a stock portfolio and a mortgage before. To your point, Ben, people usually look at the numbers and consider how they feel. More often than not, they say, you know what?
I'm just going to keep the paid for house. I'm not going to borrow to invest.
Ben Wilson: We've even had cases where we've talked to people that fully intended to pay off the mortgage and re-borrow to invest. Then all of a sudden, like actually being debt-free feels pretty good. I'd rather just keep it here and I'll invest the equivalent of my mortgage payment rather than putting it on a new mortgage.
Ben Felix: Anyway, I do still like the 30-year amortization idea as a way to purchase a home if you're trying to accelerate that goal. I think that the common pushback on it is probably incorrect. Like the idea that while you're going to pay more interest over your life, that's probably the wrong way to look at that specific strategy.
Anyway, we've gone into a fair amount of depth on those points, but I was planning on just skimming over them. There's a whole discussion of each one of those strategies in the book. That's, I think, lots of thoughtful discussion worth thinking about.
Roy's final point on housing, and this is where my YouTube channel gets a shout out, which is pretty cool to see, is that renting is not throwing your money away. Roy explains that a renter who saves the cash flow cost difference between renting and owning and invests in the stock market can be reasonably expected to match the wealth of a homeowner. Then the group starts chatting about different stories they have from their friends who are homeowners who have had all these large unexpected housing expenses.
They all kind of start to think, oh yeah, Roy probably does have a point here. Owning a home comes with a constant flow of unexpected costs. It's so constant that they should not, in fact, be unexpected at all.
They should just be part of the cost of owning a home. You get all kinds of stuff. Your basement leaks.
These are examples from the book. The air conditioner stops working. A tree has to be removed.
I just had to do that at my house. Oh, it adds up so fast.
Dan Bortolotti: Did you do that yourself then with a pick and shovel?
Ben Felix: You know what? I've fallen a bunch of trees on my property, but the remaining ones are much larger and many of them are maples, which are super scary to fall.
Dan Bortolotti: Please get someone else to do that.
Ben Felix: It's been, I think, two years now since I've actually cut any of the trees on my property down. I've got an arborist who's very good, very professional and charges accordingly. He does great work.
I had two big maples in front of my house. Now there's one. I don't know if it was a windstorm or what, but one of the big maples had a crack.
There's a kind of a Y at one point where it goes up into two, I don't know what you call it, parts. It had cracked right down the middle there. It didn't look like it was going to fall, but in another windstorm, I think it probably would have snapped.
He had to come cut it down. That's expensive. That's just one tree.
There have been times where I've had to have four trees cut down. It's like, man, that adds up quickly. Anyway, you got it.
Your chimney starts falling apart. That's another example from the book. The point is, the point that Roy is making to his class is that if renters are diligent about saving and investing the cost difference between their rent and the owner's mortgage, property taxes, and all of those unexpected costs of ownership, they can be expected to at least match the wealth of the owner.
We have shown in past podcast episodes and videos and papers using two approaches. One, using reasonable assumptions about the future, reasonable assumptions for expected stock returns, inflation, rent increases, real estate price growth, all that stuff. Using actual historical data for Canadian cities.
We've taken both approaches in both cases. We're able to show that renters and owners have similar expected outcomes. Roy does emphasize a point that I agree with and I know Dan, you agree with because we've talked about it, which is that most people who rent not save and invest diligently.
They'll under-save and they'll invest in shit coins and penny stocks and expensive financial products that underperform the market. That's just a reality. That's one of the realities that makes home- Or they'll just spend it. Or they'll just spend it, yeah.
Dan Bortolotti: Which I guess is under-save is what you mean.
Ben Felix: Then the other thing is there's the emotional aspect of it. We kind of touch on this, Ben, with the leverage. There's an emotional aspect where some people want to pay it for a home.
Some people want to own a home rather than rent, even if they have a mortgage. Some of Roy's students in the book, they also say, well, I just want to own a home. Roy says something kind of like what you mentioned earlier, Ben.
He suggests that Canadian society has conditioned people to believe that home ownership is a desirable objective, but he suggests to his students that it is worth reflecting on whether it really is a desirable objective for you specifically. I think that's an important point.
Ben Wilson: Renting almost feels like in Canada, there's like this stigma around it that if you're a renter, you're almost a failure or you're a lower class citizen because you haven't accumulated enough assets to actually buy a house, which is not the case. There's obviously real tangible benefits to renting, which we're getting into here, but it's an interesting phenomenon that has happened in Canadian culture.
Ben Felix: And American. I don't know what it's like in other countries. I think there's- My understanding is there's less of a stigma in places like Germany where renting is more common.
Yeah, it's definitely a thing where renters do get kind of looked down upon. The book also mentions that there are psychological benefits to renting. There's this emotional attachment to owning, but there are also psychological benefits to renting.
You've got fewer responsibilities related to your housing. You've got more predictable costs and you've just got more generally a more simple lifestyle. I think there are valid non-financial points on both sides, but Roy's point is that renting is a viable option for housing.
It's not throwing money away and it may be the best option for some people to follow. That section of the book was kind of music to my ears. It was also a little bit self-referential because it does refer to my work on this topic, so I'm reading it like, yeah, this all makes sense, but Dave had probably watched my videos.
Well, I know he had. Okay, so the next thing Roy teaches his students is about spending. I think this section is incredibly important.
People spend money for the wrong reasons, reasons that are not aligned with their values and goals. Roy explains that a lot of spending is the result of what he calls faulty brain wiring. People spend money to impress the people around them.
Even if they're not doing that consciously, it's often what's happening. In addition to that, we're just not good at delaying gratification. Buying stuff feels good and it's hard to defer it, to not do it when you want to buy something.
The main point that Roy wants to hammer home here is that most people would cut back on at least some of their spending or they would reallocate it, as we'll talk about in a minute, if they were more aware of where their money goes. Even small changes in spending can be a big boost to your savings rate, which is another interesting concept. His first tip here, and it's a tedious one.
Dave and I have talked about this too. I've had this same conversation with Dave, so this is definitely Dave speaking as Roy here, or Roy speaking as Dave, I don't know which way. You have to create an exhaustive multi-month spending summary.
All of your spending, every little tiny thing, collect it all for multiple months and review it. The group that Roy is teaching in the book, they're all groaning and moaning, like, that sounds like a miserable task, I don't want to do that. But Roy slash Dave, I guess, says that over his many years of experience teaching people about personal finance, these spending summaries, these multi-month spending summaries have proven vital for many people to get on top of their personal finances, number one.
I would argue, more importantly, Roy says that he is 100% sure that doing a spending summary has positively impacted people's happiness levels. The reason is that it makes people realize where they're spending on things that don't bring them value or joy, and it helps them to make sure that they are getting value from the things that they are spending on. One of the examples in the book is, James had a boat.
Someone says, you sold your boat because you saw it cost too much, but you liked your boat. James was like, well, yeah, I did like my boat, but when I saw how much I was spending on it and thought about what else I could be doing that would bring me joy with those dollars, I realized that the boat was not worth it. It was good in absolute terms, but relative to other uses of those dollars, it was not good.
James got rid of the boat. The way Roy describes it is that you want to maximize the joy units you're getting for each dollar of spending. If you can find spending that's giving you some joy units, like the boat or lunches out or whatever, but then you add them up over the course of a year and those dollars could have afforded something with a higher joy unit impact, you might realize that it makes sense to reallocate your spending.
The example from the book, one of the guys, Kyle, Roy is like, Kyle, how much do you need to put in your FHSA next year to whatever, move you towards your housing goal? He's like $4,000. Roy explains that saving $11 per day for a year results in just over $4,000 of savings and more if you account for any of return, even like a small interest rate on those dollars.
Roy brings up a famous quote from Ben Franklin here to drive the point home, which is, beware of little expenses, a small leak will sink a great ship.
Dan Bortolotti: I want to jump in on a couple of things here because the first thing is, I 100% agree with Dave about the importance of these spending summaries. And I've had quite a lot of success having clients do this exercise. And you're right, they always, always come back surprised about something.
They almost always spend more than they thought they were spending. But the other part of it is, and this is the positive part, is that it really does improve things because people will say, you know, I spend X number of dollars on travel every year and I would, don't regret it at all. I love it.
It's these life changing experience. I spend Y number of dollars on some other activity. What a waste of money.
Okay. I get a little bit of enjoyment, but I just look at this number and I'm embarrassed by it. So I'm going to cut that out.
So I think happiness comes from spending smarter, not spending less necessarily, although it could be both, but it's mostly about spending smarter. The other thing is this is sometimes portrayed as being some incredibly onerous task that you have to do. But I will say now, like I hope most people are putting most of their spending on credit cards, maybe debit cards.
I have an issue with debit cards and security. I think credit cards are much safer, but I mean, for all kinds of things, whether you get cash back, rewards, whatever, if you're going to spend, put it all on a credit card, pay off the balance every month. Yes.
But my point here is it's so easy to just download your last six months of credit card statements. A lot of credit card companies, not only tally them all up, but even categorize them for you. So they will tell you how much you spent on restaurants, how much you spent on entertainment.
So it's not that hard to do a spending summary anymore. So if you haven't done it and you're looking for ways to save more, take the time to do it. It's not that hard.
Ben Wilson: The joy unit framework is a good framework, even for bigger purchases. Like I've got a personal example. My wife and I were trying to think of, we want to invest in something that's going to create memories for our kids.
And we were deciding between, do we buy a cottage, buy a boat, or put a pool in the backyard? And I've got a lot of great memories from going to my grandparents' cottage. And I was leaning towards that at first, but when we evaluated it, for the extra dollars that we'd have to put into a cottage or possibly even a boat, plus all the extra time it would take to maintain and to travel and to invite people and to be away from family and friends when they're involved in sports and other things around the area, we decided cool was the best option for us.
And then we also use that as a place to host people and have fun memories and have lots of friends over. So for us, that was the right choice. But reflecting back, we were doing a joy unit comparison.
Ben Felix: I have been a guest at your pool and it is a very fun place to hang out. We didn't stay long enough though.
Ben Wilson: No, you'll have to come and actually swim next time.
Ben Felix: Yeah, I'll have to swim next time. We were there at the end of the season too, so we didn't get a chance to come back before you closed the pool. Okay.
So Roy finishes this lesson on spending and on joy unit trade-offs with a handful of tips. He says that you should delay major purchases by a day to give yourself space to consider the trade-offs. I love that one.
Definitely not the first time I've heard it, but if you're buying something big, I don't know what the limit for big is, probably different for everybody, but it often makes sense to sit on it, wait a day and see how you feel the next day. And in many cases, people will just forget about it. Not in all cases, but in many cases they will.
He also talks about how cars are savings killers. If you can have one car, it's better than having two. I made do with one car for years, but between four kids and really the tipping point for us was when I had to start going to a bunch of extra medical appointments.
We needed a second vehicle, but one car worked for a long time. He also talks about how good savers do still have areas of indulgence, but they make up for them in other areas of their budget. So you can't indulge everywhere, but if someone really likes whatever, travel, the good savers that Roy slash Dave has evaluated the budgets of, they'll splurge on travel, but they won't go into restaurants when they're not traveling or something like that.
So they'll cut somewhere else or they'll be relatively frugal in one area so that they can really spend on some other area. He talks about how being a good saver doesn't have to mean a life of austerity, just a life of well-considered joy unit trade-offs. Another point that he makes is that a dollar saved is $2 earned.
This is quite an interesting point. The point he's making here if you can spend $1 less on something to achieve whatever it is you're trying to achieve. In the book, he uses the example of Jess, one of the characters, buying end tables for $400 instead of $800 because she found them on sale.
The effect on your cashflow is more like earning $2 of extra income. Because of course, if you earn $2 of extra income, you've got to pay taxes and all the other payroll deductions before you get to spend it. So saving $1 is equivalent to earning $2 approximately.
Then Roy also mentions, again, as he mentioned earlier on the ways to buy a house, that one of the best ways to improve your ability to save is to just earn more money. He does talk in the book about side hustles. Personally, not a fan of side hustles.
I've always just focused on doing my actual job better and better. I know that doesn't work for everyone. It's worked really well for me.
I think I would be in a much worse financial position if I had started some kind of side hustle while also trying to do my regular job.
Dan Bortolotti: I'm also trying to figure out how you have any spare time at all. I don't know when you'd be doing a side hustle.
Ben Felix: That's a fair point. I do know some people who are financial professionals by day and have a podcast like I do, but they do the podcast as a side hustle or as a thing that is separate from their employer. I guess it is possible.
That's just not how I've approached it.
Ben Wilson: Do those friends have four children at home as well?
Ben Felix: Yeah, actually, not four, but a couple. It's possible. Anyway, Roy does like the side hustle idea.
It comes up a couple of times in the book, which is fine. I'm sure that can work for some people. Now, Roy does say that in his experience, slash Dave, because I've talked to Dave about this too, people who live within their means tend to be happier and less stressed.
They're not consumed by consumption. They're aware that going for a walk or spending time with family, spending time with friends, being part of your community, focusing on your health, hobbies, all that kind of stuff. They recognize that that is more valuable to your well-being than quartz countertops or luxury vehicles or walk-in closets or expensive wines, which if people want to indulge in those things, that's fine, but I don't know if they're going to make you much happier.
Dan Bortolotti: It depends on the wine and it depends on the family when you consider that trade-off.
Ben Felix: That is a very fair point, Dan. The next and the last lesson is on wills, life insurance, and responsibility. Again, just a great chapter that you don't find this in every personal finance book.
Now, Roy jokes that he didn't give the group a heads up about this lesson ahead of time, about the topic, because he feared that nobody would show up because it's kind of a boring and morose topic. Nobody likes thinking about dying, but as Roy explains, if you don't think about it, your estate will be distributed based on your province's intestacy laws, which are the laws that determine what happens to someone's assets when they die without a will. Now, those odds are often at odds with what you would have wanted to happen if you had taken the time to plan for your death.
I think it's important to consider what exactly you want your estate to achieve and then have a will drafted accordingly, rather than deferring to the provincial intestacy laws, which are probably not ideal for most people. Roy does suggest talking to a professional here. He seems to really believe that that's the best approach, but some of the characters say, well, what about the online will services?
Roy kind of says, yeah, that can work too, but he really hammers home the professional idea, which I would tend to agree with. Personally, I would want to go to a professional, especially if you have any complexity, either in your assets or in your estate objectives. If you have a really, really simple situation and really, really simple estate objectives, I'm sure the online services are fine.
For most of the clients that we deal with, we would tend to want them to talk to a professional.
Dan Bortolotti: That's definitely true. Although I would say like for, again, for his audience, which is mostly, I think, younger people, if you're not married, you don't have children and your estate's pretty modest, an online will is certainly better than nothing and not that difficult to put together. The main thing is to name an executor and again, to make sure that the people that you want, a lot of people, for example, in that situation might want their estate to go to a sibling as opposed to their parents who probably don't need it.
If that's what your goal is, it's easily done online. Yeah, I've had clients ask me, they have corporations and they have seven-figure portfolios and I'm going to do my will online and please don't do that. Please don't go to the guy on the corner who does real estate law 90% of the time and then just has some will templates. Get it done properly.
Ben Felix: Yeah.
Ben Wilson: Yeah. To your point, Dan, I agree with you a hundred percent, but having something is always better than nothing for sure.
If you have more complexity and have an online will, that is better than not having a will at all. There is always a default will in place and you don't want the government to decide what happens to your assets.
Dan Bortolotti: Yeah. Or determine an executor for you.
Ben Felix: Yeah. That's another big one. The default will, I was going to mention, is the intestacy laws.
That's like everyone has a default will. Roy does this, there's a huge section of the book on, I mean huge, there's a relatively robust section of the book on choosing an executor. Bigger than I would have guessed, I guess.
I don't know why I thought it was huge, but I read that section. I was like, wow, there's a lot of attention paid to this. It's heavily emphasized in the book.
The executor is the person responsible for carrying out the will's instructions, but it's not a small job and it should not be taken lightly. Roy explains that an executor should have strong organizational skills, be trustworthy, patient, diligent, and persistent, and be both thick skinned and compassionate. They should also be someone that has sufficient time to dedicate to the executor role.
For some estates, being an executor can be very time consuming to do it properly. The other thing Roy says that's interesting is that the person should have the desire to be your executor. You've got to discuss it with them beforehand, maybe that's obvious, but you don't want to just appoint someone in your will without talking to them about it.
Then the other thing that Roy mentions is that it should be reviewed periodically as life circumstances and relationships change. You might talk to someone who's a good friend today and they're like, yeah, I'm totally down to be your executor. Then eight years later, they've moved across the country or maybe you've lost touch or whatever, and then they would not be a great choice anymore.
It's worth reviewing periodically. Then it also makes sense to name contingent executors in the event that the primary executor is unable or unwilling to take on the role when the time comes. Another option, where the trade-off here is just fees and costs, but another option is a corporate executor.
You're appointing a trust company instead of an individual to be the executor. This is a professional service that does this all the time, specializes in it. That can make a lot of sense for large or complex estates.
There's a cost to it and you've got to consider those trade-offs. Then the last point Roy makes on wills is they should be reviewed at least once a year. He also mentions that when you get your will done, and this is something we always talk to clients about, you also want to draft power of attorney documents.
Powers of attorney give legal power to someone you have chosen to make decisions on your behalf in the event that you become incapacitated. There are two main types, power of attorney for property, which lets someone manage your money and other assets, and power of attorney for personal care, which lets someone make health and lifestyle decisions on your behalf. Again, similar to an executor, choosing the right person or people for those roles is extremely important because this is like if you become sick suddenly or you get hit by a bus and get a head injury, you're alive but you're incapacitated mentally.
These are people who you're appointing ahead of time to make decisions on your behalf in that event. They're making very, very serious, sometimes life and death health decisions for you. They're making decisions about the management of your assets.
Again, not an appointment to make lightly.
Ben Wilson: Important to note that the power of attorney for property and the power of attorney for health can be two different people. That can be very appropriate depending on the circumstance.
Ben Felix: I think he talks about that in the book. I think he talks about the characteristics you would look for in each type, like someone that's more compassionate maybe for the power of attorney for personal care and maybe someone that's more financially savvy for the other one.
Dan Bortolotti: Probably also worth mentioning that that's pretty Ontario focused, that those terms are different in different provinces across Canada. There's some equivalent of both of those documents in all Canadian provinces, but they go by different names.
Ben Felix: That is a good point. Then the last section that we're going to cover here, which is mainly the last section of the book, there's a few more bits and pieces after this, is on insurance. Roy explains that while life insurance is extremely valuable in the right circumstances, it's always a cost.
You want to make sure that you have an actual insurance need before you buy life insurance. You don't want to pay for the cost of insurance if you don't have an insurance need. Life insurance provides financial protection for your dependents in the event of a premature death.
An insurance need means that other people that you care about would be unable to maintain their lifestyle in the event of your death. It means that there are other people who are financially dependent on you. The most common example would be your spouse and children, particularly in cases where you are the primary income source for the household.
That insurance need does tend to decrease over time as your assets increase. There are some comments in the book about potentially laddering different term insurance policies to cover a declining need as you increase your assets or as you expect to increase your assets over time. Now, Roy does walk through in the book in a decent amount of detail how to quantify your insurance needs.
I'm not going to go through all that here. I think it's worth reading that in the book though. Then the final point that Roy makes on insurance is one that I think everyone needs to hear, which is that most people will only ever need renewable and convertible term life insurance.
Term life insurance pays out the face amount of the policy if the insured dies. You buy a million dollar policy, it pays out a million dollars if you die. It has a level premium for a fixed term, like 10 or 20 years.
Then the insurance expires or renews at a higher premium at the end of the term. The alternative to term life insurance is cash value life insurance, which combines term insurance effectively and a savings component, where a portion of the premiums that you're paying go toward building up a cash value inside of the policy. That's why it's often called cash value life insurance.
Now, that savings component means that you're paying higher premiums overall, often much higher for the same amount of coverage that you could have gotten through a term insurance policy. Roy explains to his crew that buying term life insurance and investing the difference is a better option for most people most of the time. Again, that's one of those things where I know Dave has spent just a tremendous amount of time on that topic, digging into himself, doing analysis, talking to actuaries, talking to insurance companies.
He's come to this conclusion very consistently since he wrote his first book, continued looking at it over time, revisited it for this book, and continues to find the same thing to be true, and I would tend to agree with him on that.
Dan Bortolotti: Although it has the same pitfall as rent and invest the difference, which is for a lot of people, it's buy term and spend the difference. You always have to make sure you follow through on the second half of that bit of advice.
Ben Felix: One of those cases we talked about when we were introducing the book, Dan, about where they have all the different characters with their different views and opinions, that is discussed in the book from that perspective, all the different perspectives. It's one of those cases where it was a really nice way to communicate the information and the trade-offs. The last, last thing is disability insurance.
Roy talks about how for young people with little financial assets, their biggest asset is their ability to earn income in the future. Life insurance that we just talked about protects that future income in the event of an untimely death, but death is not the only way your ability to earn income can be disrupted. When someone becomes disabled, they may lose the ability to earn income or reduce their ability to earn income, and they may even become a liability to their family because they're still alive.
A dead person doesn't need support and care, a living person does. Matt, the main voice of the book, he mentions that he's covered through a group plan at work, which many people are, but Roy correctly cautions that many group plans are insufficient. One big point to look out for is whether the policy covers you in the event that you can't fulfill the duties of your own occupation, rather than the duties of any occupation.
I know for me personally, I have an additional private disability policy on top of the one that we have through our PWL group plan for this reason. Own occupation disability coverage, that covers you as long as you cannot do your own occupation, the duties of your own occupation. That's the gold standard.
That's what you want, especially if you're working in a professional capacity. You also want partial disability coverage. This is points from the book, but they're all points that I agree with.
You want partial disability coverage, cost of living adjustments, and you want the policy to be guaranteed renewable. Typically, that means getting additional coverage, as I mentioned, I have done, even if you do have a group plan. A point that Roy makes in the book, and I definitely agree on this as well, is the disability insurance is not an area that you want to skimp on.
It's expensive, but what does Cameron say about this? He says, if you think it's expensive, you can't afford not to have it or something like that.
Dan Bortolotti: It's so important. I will say with some sympathy here, because if you are self-employed, it's even more expensive because presumably, I don't know, I remember doing this when I was a full-time writer, but I was a freelancer. I didn't have a salary.
Even when I was making a good income, I guess the disability insurance is looking at, well, you could end up with writer's block and make a disability claim. It's just so easy to try to make a bogus claim that disability insurers have built that into the premiums. That's obviously harder to do if you're a salaried employee.
I guess my point was, I did get it, but it was expensive. Just be prepared. As a self-employed person, you still need it, especially if you have dependents, but it is not cheap.
Go in prepared for that. Don't run away when you hear the price. Think it through.
To Cameron's point, yeah, it's expensive, but try to imagine a situation where you actually need it and don't have it. He talks about it in the book, Dave does, that the percentage of people who will be off work for more than a year is about one in four. That blows a lot of people away.
It's much higher than people think it is. That is not a remote possibility. That's a pretty high probability.
All good advice there, but yeah, not always easy advice to follow when you check the price tag.
Ben Wilson: There's a reason for the price tag, right? Disability insurance is higher because it's more likely for you to get disabled than it is for you to die prematurely. Term insurance is relatively affordable if you are a healthy individual, but the opposite is true for disability because anything can happen.
Ben Felix: Pretty interesting to think about. I agree with your point, Dan. People need to be ready for the sticker shock, but it's such an important thing to have.
I know for my family, obviously dying would not be very good for anybody if I became disabled in a way where I couldn't do my job. I can't do the podcast anymore. I can't do the critical thinking and writing that I have to do.
I've even seen people with relatively mild head injuries where they can no longer look at a screen because it gives them an absolutely splitting headache and all of a sudden you can't do your job. If I were in that situation without that disability insurance, my family would be – it would be an absolute unmitigated disaster. I pay a lot for it, like you said, Dan, but I think it's worth it.
The other thing that's tough with disability is it is really hard to get, relatively speaking. When they underwrite a disability policy, partially for the reason that you mentioned, Dan, it's relatively easy for someone to get approved and then just say, oh, well, I'm disabled now. The insurance companies are super, super careful with who they will actually insure.
It's probably and maybe an insurance pro can correct me on this, but I'm pretty sure it is the most difficult type of insurance of life and health insurance to actually get approved for.
Dan Bortolotti: That raises another issue, which is if you need it, this is one place where I would really suggest people find an insurance agent and find an insurance agent who has some specialty in disability. In our professional network, for example, we have a number of people who are very good at placing life insurance policies, even for people with some specific health challenges, but they may or may not have any expertise in disability. The ones who do have expertise in disability are invaluable here because they will find the right insurer for you and help you with the application process.
Again, you don't pay them directly. They get a commission from the insurance company, but I don't know that you're saving very much if you try to apply directly with the insurance company. That's a place where a good agent can really help you.
Ben Felix: Well, that was our, I don't know if it was a review or a summary or a combination, but that was our discussion of the Wealthy Barber's fully updated 2025 edition, which as we mentioned at the beginning, I personally think if someone was starting from scratch and said, Ben, what book should I read to learn just the basics of all things personal finance, this would be high up on my list. Dave did a really, really good job with the update and it's so approachable. Not approachable enough to get my wife to read, but I'm trying.
I'm trying to get her to read it just so she can tell me if it was as approachable as I think it is.
Dan Bortolotti: He makes a point in the book of saying that he vetted a lot of passages with people. He presumably gave chapters to people who would not necessarily be inclined to read a personal finance book and say, read this. Does it make sense to you?
If not, tell me what's not working. It shows you can tell. I feel like for me as a writer and editor, I'm reading through it and I'm like, I can hear in the back of my head where the iterations were.
I bet this went through a couple of stages and yeah, you came out with a good summary of a difficult topic that you probably didn't get on the first try.
Ben Felix: Very cool. Dave, if you're listening, "Hey Dave, nice job on the book."
Dan Bortolotti: Well done.
Ben Felix: Yeah, well done. I do hope people will read it and not just listen to this episode. I think there's much more wisdom in the book than we're able to convey.
Although hopefully we added our own little touch to the topics we discussed. Anything else from you guys?
Ben Wilson: Yeah, I think just the big takeaway for me is that personal finance is mostly simple principles that are not necessarily easy to implement. The challenge is implying them consistently in a world that is continuously nudging us to do something different based on market headlines or whatever the case might be. Anything that can help people such as this book to encourage good behavior, reduce the noise and stay patient can help you lead to better outcomes in your financial journey.
Ben Felix: Simple but not easy. That's a great way to describe good personal finance. All right. Thanks guys and thanks everyone for listening.
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