Blessed by the Potato

One of my main focuses these days is helping people to get their money invested in a way that works for them for the long term. That’s why I started coaching people, and why I wrote The Value of Simple, to teach people how to do that on their own. Lots and lots of people have found it really useful and I’m very proud of that. Many can and should go the DIY route, but not everyone will want to or be well-suited to that method.

The robo-advisors sound like an excellent alternative, especially when combined with a fee-for-service planner for the complex bits that fall outside investing. I really like the idea of robo-advisors, but I had some reservations when they first came out. I’m glad to say that they are by and large knocking down my objections (in particular, moving from esoteric high-cost underlying funds to lower-cost broadly diversified portfolios, lower minimums, etc., though all-in pricing remains a challenge).

So far when someone has needed a hands-off DIY-ish solution like this, I’ve mostly been pointing them to Tangerine (covered in the book) in large part because Tangerine is a known quantity. A “known-known” if you would. I know first-hand that Tangerine is easy and smooth and painless, and what the tax statements will look like, that it minimizes analysis paralysis, and that all four asset classes are held in a single fund structure so rebalancing doesn’t lead to realized capital gains/losses in non-registered accounts¹. Even just a few months ago, for people with smaller accounts Tangerine was really not any more expensive so it was an easy recommendation. As the robos have started using cheaper underlying funds and offering free passes to really small accounts, the cost difference has grown and the robos look more attractive. For people with larger accounts it was often a temporary recommendation, like “go with Tangerine for now and see what shakes out next year — you can switch then when there’s more clarity.” Note that I’m not trying to fear-monger with statements like that: I’m concerned with the customer experience rather than the safety of the money (which is held by reputable custodians covered by CIPF). Rest assured that even if the plethora of firms start to consolidate, or get swallowed by the big banks, or whatever, your investments there will be safe².

There are still a few minor questions and quibbles³, but I’m the kind of person who will always have minor quibbles so at this point there’s no point in holding back from recommending them for investors who see value in their services. The main thing that’s missing is that first-hand experience, because no matter how easy they are to use it’s always handy to have a third-party walk-through to reassure people that it will all be ok, that the real-world situation lives up to the marketing⁴.

I wanted to make a grand guide to robo-advisors, kind of like a supplement to the book to compare them, including first-hand experience. I pitched it as a multi-part blog post guide as well as a flashy PDF summary. But I haven’t been able to secure the support to make that happen, and it’s too late in the year to include anything about tax reporting even if I was able to make that happen today. I still think a head-to-head mystery shop comparison would be really valuable, and I hope someone puts in the time and capital to do it (especially to do it in a way that includes challenging the services/concierges with dumb questions)… but it doesn’t look like I’m the right person to do it⁵.

Good behaviour is an essential part of long-term investing success, and is one area where I’m still not quite sure where the robo-advisors fall. On the one hand they largely use best practices to create broadly diversified portfolios and take away all the performance-chasing and what-not that individual investors and active managers are equally guilty of. Set it, forget it, automate it — they sound awesome. When markets roiled at the end of the summer they send out reassuring emails and had their staff standing by the phones. However, they also offer smartphone apps. At CPFC15, the CEO of one robo-advisor proudly proclaimed that a third of their clients check their smartphone app daily.

A third? Every day? I threw up in my mouth a bit.

That is just not a good thing for investor behaviour (but great for “engagement”). Even if there isn’t a big “panic sell” button in the app, frequently checking on a portfolio makes people feel the market ups and downs more vividly, which might lead them to do something drastic down the road (indeed, attempting to panic or alter my risk profile on the fly was something I wanted to check in the robo-advisor review/mystery shop to see how they handled the situation). Yes, Tangerine has an app, but it’s designed for your chequing account and it takes a few taps to get down to see your investments, and even there they only show you the balance in your investment account, with no flashy graphs of recent market drops or big red daily change numbers, and no individual segment reporting so you have to work a bit harder to activate your lizard brain.

But whatever, there’s nothing to do but see how things shake out, and with how fast things are moving those could be totally redesigned by next week.

So if you’re looking for a lower-cost way to get the investment implementation part of your finances handled — and don’t want to do a full DIY implementation — go ahead and check out the robo-advisors, and let me know how it goes. Remember that getting your savings invested is just part of the personal finance and planning challenge. A big, scary one to be sure, but just a part — your plan will be important for creating the context for those investments (like risk tolerance) and will be important for a bunch of other stuff unrelated to investing (like sleeping at night).

1 – and that they’re not playing silly buggers with esoteric asset classes and slicing-and-dicing, which I personally dislike but which I suppose I have to admit is not inherently evil.
2 – well, safe as can be expected: you may be inconvenienced, and still subject to the risks of the investments themselves — you’ll get your share of the ETF units back (or their market value at the time), but your principal is not guaranteed, just like investing anywhere else.
3 – like this post from WealthSimple. I’m not sure such expertise exists at all — and given that the fund in question under-performed a vanilla bond index when managed by the so-called professionals, I’m highly skeptical that if such expertise does exist that a small firm like WS will suddenly possess it in-house… and Eric Kirzner has been there since the beginning, which I should stop ranting about in the footnote. I will always find quibbles.
4 – to spot the unknown unknowns.
5 – in large part because I’m cheap and while the robo-advisors are relatively inexpensive, they’re still going to cost me a few hundred bucks more than DIY costs, on top of the PITA factor of actually doing it and then dealing with all these open accounts everywhere (which would all be non-registered accounts as my TFSA is full). And apparently I’m not persuasive enough to get them to sponsor an editorially independent comparison. [note to the footnote: I had not yet asked WealthSimple, in case they’re reading this and are all like “what, we never got such a request from Potato.” I figured the other rejections were enough to kill the idea.] {note to the note to the footnote: I had thought about trying to do a really small kickstarter, but as much as I think this sort of thing would be useful to the community, I don’t think anyone wants to fund it.}

I keep thinking that there are a lot of people who really want or need a course on personal finance and investing, and there aren’t many resources for it. There are books of course, but some people just aren’t book learners, or prefer a course for one reason or another. There are some good continuing education courses offered through UofT and a few other universities across the country, but for most people who don’t live close to campus they’re out of luck. So I’ve thought about putting together a full online course on the matter, and while few people think it’s needed, when I actually asked who would sign up for such a beast the response was under-whelming.

A full course would be something like 12-16 hours of lectures and discussions, which would take hundreds of hours to prepare, practice, and coordinate. It’s madness to put in that kind of work before knowing for sure that there’s actually an audience at the other end. So it’s a bad idea. No one wants it, at least not online.

And yet it’s an idea that won’t die. I’ve kept thinking about how to put it together, how to change and add to the content of the book for a course, and moreover talking myself into thinking that it is needed and maybe the reason for the previous response is that people just don’t want to raise their hands over vague hypothetical options (also, the people who would want a course are likely not on r/PFC or here, excusing the underwhelming response earlier). So I’ve doodled a bit and come up with a preliminary syllabus for such a course.

But it’s still a terrible idea that’s going to take way too much time that I don’t have. Fortunately I’ve heard that Ellen Roseman plans to take one of her UofT courses online next year, and Bridget of Money After Graduation is putting together an online course on investing too. So maybe I can bow out and let them solve the problem.

Here is the preliminary course outline/syllabus, make of it what you will. Maybe it will get you excited and you’ll want to enroll or back a kickstarter-type thing to make it happen. Maybe Ellen and/or Bridgette will liberally borrow for their courses (and the outline is not the hard part of creating a new course so I don’t really mind). Maybe you will tell me that my outline is bad and that I should feel bad.

Planning, Investing, and Other Grown-up Money Concerns
Proposed Course Outline (each unit approx. 45 minutes + time for questions)

• 1. Introduction and Money 101 Review
  a. What you should already know and have mastered.
  b. Budgeting and living within your means.
  c. Saving saving saving
  d. Emergency funds (insurance?)
  e. Credit cards, lattes, etc., etc.
  f. Clever parables, Diderot’s housecoat, Chilton’s four most dangerous words.
  g. Reading list to kick-start the course.
• 2. Free Your Mind and Your Ass Will Follow
  a. The importance of attitude, behaviour, and long-term thinking.
  b. Neat grey matter tricks, including why free makes us stupid.
  c. Social animals and keeping up with the Joneses.
  d. Heuristics and rules-of-thumb (or should this be a whole other class?).
  e. Points-of-view.
  f. On uncertainty, and why a scientist is talking right now.
• 3. Canoeing Down the Spanish River: Goals, Direction, and Having Fun [w/ Sandi Martin]
  a. Sandi’s talk from TPL, expanded a bit.
• 4. Needs, Wants, and Other Sundry Topics
  a. Some concepts, because I had to stick them somewhere (inflation, compound returns, how to read graphs, use a spreadsheet, probably some other stuff).
  b. Needs and wants, and creating your minimum plan and ideal plan.
  c. Other goals and things that will affect your planning.
  d. An aside on the industry, some ranting, why I push the do-it-yourself way.
  e. Sketching out a plan and how to get there.
• 5. Finally, the One in Which He Talks About Investing
  a. Investments help us make our plans a reality.
  b. Types of investments.
  c. Investing in businesses.
  d. Lessons from active investing: intrinsic vs market value, and what it means for long-term investing in a world that survives the coming zombie apocalypse.
  e. Investing in bonds, real estate, commodities, and other stuff.
  f. History and setting reasonable expectations.
• 6. The Quick and Dirty Yet Completely Convincing Explanation of Index Investing
  a. The importance of fees.
  b. For repetition sake, a discussion of how fees matter.
  c. What can be controlled and what cannot be.
  d. Active vs passive – theory and past results.
  e. The added benefit of simplicity.
  f. Other ways of investing, and what they entail.
  g. The importance of “I don’t know”.
• 7. Risk, the Gom Jabbar, and the Unfortunate Gambling Analogy
  a. Risk in everything.
  b. Many definitions of risk, and blending of volatility and uncertainty with risk of lifestyle impairment.
  c. Risk on different timescales.
  d. Risk tolerance.
  e. Enduring a market-crash in real time and Dune’s Gom Jabbar.
• 8. Let’s Do It: Asset Allocation and Your Plan
  a. The canonical portfolio.
  b. How to decide on an allocation that will work for you.
  i. The age-based rule-of-thumb, and the completely arbitrary equity split.
  ii. The classic 60/40 one-size-fits-all portfolio.
  c. Apocrypha.
• 9. How You Actually Do This: Three and a Half Investing Options
  a. Robo-advisors.
  b. Tangerine.
  c. TD e-series.
  d. ETFs.
• 10. How You Actually Do This: Taxes and Tax-Shelters
  a. TFSA.
  b. RRSP.
  c. RESP.
  d. RDSP.
  e. Non-registered: taxes, dividend tax credit, capital gains, ACB.
• 11. How You Actually Do This: Writing Stuff Down and Making Spreadsheets (Or Whatever)
  a. Condensing your goals and direction down into a written plan.
  b. Writing down your asset allocation and a rebalancing plan.
  c. Tracking stuff with spreadsheets (or pieces of paper in a binder, or whatever works for you).
  d. Tools that already exist and can help.
• 12. Where I Talk About Processes and Take a Break to Riff
  a. Processes, lessons from engineering and health care.
  b. Good enough solutions.
  c. Execution risk, and some more talk about the behaviour gap.
  d. Some slack time to review any material from the previous classes that needs further discussion.
• 13. Au Secours, Au Secours!
  a. When to get help.
  b. How to find help.
  c. Getting value-for-money.
  d. What an advisor/coach can do, and what they can’t do.
• 14. The One Where I Reveal My Thoughts on Real Estate and You All Hate Me for It.
  a. The biggest purchase – and biggest expense – in your life, and why it deserves more thought than it gets.
  b. Rent vs buy analysis, and busting myths about renting. The ball pit analogy.
  c. Income suites are not magical.
  d. The housing bubble, and the pernicious myth of the property ladder.
  e. A look back at US housing bubble and why it’s not really different here.
  f. Real estate as an investment, direct and REITs.
• 15. The Hardest Problem in Personal Finance [hopefully w/ secret guest(s)]
  a. The options that open up as you near retirement (annuities).
  b. Government benefits in retirement, CPP.
  c. Sequence-of-returns risk, longevity risk.
  d. Sustainable withdrawal rate, and the various schemes to convert a pile of investments into lifetime income.
  e. Decumulation plans.
• 16. An Hour for Questions, or Lacking Those, Delicious Discussions of Dirty Dealing
  a. Q&A.
  b. Why I hate market-linked GICs and their dirty advertising.
  c. TANSTAAFL in general, being skeptical.

The subway was yet again disrupted this week, with all three subway lines out of commission for an extended period Monday morning (and for a while the SRT too) — and not even shuttle buses to try to take up some of the load. I personally think it was a terrorist threat and they’re just not telling us, because the official explanation does not make sense to me at all, and just makes me angry.

Officially, it was a communications failure, and they can’t run any trains in any fashion without communications. TTC spokesperson likened it to “trying to land a plane without having communications with the tower.”

No, come on, pull the other one. I’m going to try to track down a few drivers and see if the media contacts at the TTC will talk to me, but there is just no fucking way it is like that at all. They’re trains, running on tracks, with human drivers. The equivalent scenario is closer to drivers having to cope with a power outage knocking out traffic lights — things slow down, you approach every intersection with caution, but you don’t just throw your hands in the air and say that it’s too unsafe to leave the garage today.

Trains are not cars, but in many ways the differences make the situation easier: they’re on tracks, on isolated rights-of-way, with no worries of kids running across to chase balls or geese¹ sauntering across the road. The main thing to worry about are the switches, and it should be super-simple to interlock them to lock in straight-ahead mode for safety when comms go out.

So I can’t see any damned reason why a train can’t creep along under the direction of the human driver, and get some kind of service going. Yes, they may have to go slower — a train can’t exactly stop on a dime, but usnig publicly available information TTC subway trains can come to a full stop from 30 km/h in about 50 m without bowling anyone over, and in as little as 25 m in an emergency braking situation (for scale, the trains are 23.2 m long). Now I know that distances are hard to judge accurately by eye, especially underground in the absence of familiar landmarks for scale, but from all the time I’ve spent on the subway gazing out the front of the lead car, I’m pretty sure the visibility down the well-lit tunnel is at least 50 m in all parts of the line, and multiples of that in most places. And even if it’s not in some curves, from a relative 15 km/h crawl — that still moves something — a train could stop in 12 m.

That leaves the 6 switches at the terminal stations as the main sticking point to operating without communications. And seriously, if those can’t be manually operated by a half-dozen people sent into the tunnels to direct traffic, then they should be redesigned to do so ASAP.

Yes, it would still have been a sucktacular delay, and without communications its likely we’d get trains bunching and gaping through the system pretty quickly. But I just can’t believe that professional, unionized drivers are completely unable to operate their trains without being directed by central communications in constant contact, that there isn’t a 15 km/h failsafe mode. I mean, many cities had subway and trolley systems before radio communications and signalling systems were even invented, and the trains ran.

1. Who can fly, but choose not to. Seriously, fuck geese. Now that I think about it, the TTC’s mascot should be a Canada Goose.

Update: As soon as I hit publish I think I got it: they think it’s a safety issue not because the trains will crash but possibly because the emergency response strips won’t send a signal to TTC central so that they can call an ambulance and hold the line up for the false alarm of the hour. Again, I don’t see how waiting until the train hits the station for a runner to hit the surface and call 911 is such a major safety issue that it warrants a complete shutdown. But then again, if that’s the reason then the plane landing analogy above is totally off base and even more idiotic.

“Officials will also be hoping and praying many Torontonians will voluntarily opt to work from home, carpool or work irregular hours to cut down on congestion. The transportation plan hinges on a 20-per-cent decrease in transportation demand during peak hours.”

I believe strongly in the success of any transit plan that involves hoping and praying that one in five people who somehow have not yet found a way to avoid commuting in this city will find a way to not commute especially for the games.

I wonder how effectively I’ll be able to communicate with Blueberry as she grows up. I mean, so much of the way we communicate is based on shared experiences, which was accelerated in an age of cable TV. So many people my age watched so much of the Simpsons that quotes from the show are an integral part of our lexicon (“I bent my wookie.” “Boo-urns.” “The goggles do nothing!”). Indeed, Scott Meyers mentioned this effect in Magic 2.0: Off to Be the Wizard. With my friends it’s even worse, we can communicate almost exclusively in quotes and imitations from various shows and movies.

It reminds me of that Star Trek: TNG episode Darmok and Jalad at Tanagra, where Picard has to communicate with aliens through references to stories and metaphor.

On one level, she’ll be coming into a different world: she’ll likely never use a command-prompt OS, the mystery of bigfoot and UFOs will be so much less viable, and she’s already started learning how to read and write on a computer before she can even write the alphabet by hand. She may never know what it’s like to memorize facts just because encyclopedias aren’t always at hand/searchable. It will be different. Although there is a chance she’ll pick up my crazy language on the fly, knowing that “SPOOOOOOON!” is just something you say before doing something heroic, even without knowing the source.

Of course, I already have that Darmok and Jalad issue with Wayfare, who should be fully versed in shared pop culture lexicon. Through the winter she was constantly nagging and harassing helpfully reminding me about putting my boots on the mat at the front door. “Arrgh!” She’d exclaim randomly, “how many times have I told you, put your boots on the mat! I’m tired of stepping in puddles!” So I’d apologize, obviously thinking I forgot or something, then go check and see that my boots were indeed on the mat. Squarely, securely, indisputably on the mat. Oh, maybe she moved them for me, I’d think — next time I will definitely be conscious when I pull my boots off after coming in. Then it would happen again, and again, and I went down to see what the problem was with her. And there, despite her complaining, were my boots, sitting as neatly as could be on the mat.

“They are on the mat!”

“No!” she said, “Put them on the mat! THE MAT!”

“Look Mr. Burns, I don’t know what you think sideburns are, but…” and she just didn’t get the reference, even though it was the perfect Simpsons allegory for this particular issue.

Eventually she picked up the boots, and put them on the plastic tray and I was like “oooh, you meant the tray.”

So I don’t know if Blueberry is ever going to get that sideburns reference. But there is hope: she knows that a TARDIS goes “bwwwfff kkkkk kkkk kkkk” [I am not good at onomonopias], and I will shortly be teaching her the Transformers sound for shape changes. Of course, maybe I shouldn’t hope for too much, as it provides us old folks with a secret language all our own for when she figures out how to spell things. For instance, how do you discuss what to have for dinner without having the toddler lock in on one option and dominating the choice?

“Let’s order something in. What do you want?”
“Cowabunga!”
“No, we had that one the weekend. Ludicrous speed? What’s the matter Colonel Sanders?”
“No, the Pentavritim is just too far away. Look at all your different coloured hats?”
“Yes! Sandwiches!”
Blueberry: “Sandwiches?! With cheese, and cucumbers, and cheese, and buns!”
“And now there’s no backsies on sandwiches.”

But as much as I’m a little nostalgic and concerned that her youth will be different from mine, making it hard to relate, I’m also a kind of excited about her future. She is turning out to be quite shy — possibly just as shy as I was, maybe even moreso. So maybe she’ll be a bit socially awkward, but she won’t have to wait until she’s 15 for email to get big, or 18 for ICQ to be invented. I also know that she’s clever (beyond just a daddy’s pride) and in today’s society I don’t think she will ever be called a nerd except as a complement. I don’t think kids these days even know “four-eyes” as hate speech.

Not all the new experiences she has will be for the best, but at least she will always know that I am a robot sent from the future.