More Money Podcast - 025 The Value of Index Fund Investing - John Robertson, Author of The Value of Simple

Episode Date: November 4, 2015

John Robertson, the author of the DIY investing book The Value of Simple, and I discuss the why and how of index fund investing, his side gig as an investment coach and how investing can be simple (if you're doing it right). Long episode description: In this episode I talk with John Robertson, the blogger behind Holy Potato and the author of The Value of Simple, about one of my favourite topics — index fund investing. I explored this subject a bit in my podcast episode with Barry Choi, but John breaks down the principles even further and explains what actionable steps you need to take to become a do-it-yourself investor. If you are really interested in going the DIY investing route, I highly suggest reading John’s book. I did and I seriously learned a lot about what is involved and what the best ways to get started are. We mentioned a number of resources in this episode, and here they are below. Books John Mentioned The Little Book of Common Sense Investing by John C. Bogle The Wealthy Barber by David Chilton John’s Book The Value of Simple: A Practical Guide to Taking the Complexity Out of Investing Money Planners & Coaches Directory Directory of Fee-Only Planners and Coaches Shownotes: jessicamoorhouse.com/25 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, and welcome to episode 25 of the Mo Money Podcast. I'm your host, Jessica Morehouse. Thank you so much for joining me today. Very excited to interview my next guest. His name is John Robertson. He is the author of the book, The Value of Simple, all about index fund investing. And you remember, if you listened to my episode with Barry Choi, he's the one who actually suggested that I take a look at John's book. And I did. I read it, loved it. It definitely was a great way to really understand the fundamentals of index investing. So I'm very excited to talk to him about that today. Before I get to that interview, though, I do want to share that this episode is sponsored by Manulife. And they're actually doing this really cool campaign right now

for about next week or so. It's called Life Ready or hashtag Life Ready on Twitter and Instagram. And it's all about finding out whether you are financially ready for those unexpected and expensive moments in your life. And so you can find out, oh, do I need life insurance, joining disability insurance? I'm going to say probably yes. So if you want to find out how ready you are and what ways you need to improve in your life, make sure to take this really cool quiz. It's in the show notes, momoneymohouses.com slash 25. And you can find out exactly what areas that you need some help in, or maybe you're just rocking it and you're doing awesome. I did pretty well myself. Just going to say I scored an 85 out of 100. So that's

kind of like an A. And on that note, let's talk about investing. Thanks, John, for joining me on the show today. I appreciate you coming over. Thanks for having me. No problem. So let's dive in. At what point of your life did you become interested in money and personal finance and then, I guess, eventually investing? Well, I've got to say that I've been interested in money and personal finance pretty much my entire life. Like earning allowance and taking it down to the local, at the time, Canada Trust branch and throwing it into a junior account. Oh, wow. Watching those pennies add up. And my dad is very into investing, So I got to credit him with a lot

for helping me to get into money, get into investing. Like even at a young age, he was like, no, you go and talk to the bank advisor and you negotiate your GIC rate yourself at like 12. Oh my God. That's a bit, you had a GIC at 12? Yep. Are you kidding me? That's amazing. As soon as I hit the $500 minimum at the time to get a GIC, I went and got one. Yeah. Okay.

That explains a lot. So that's awesome. That explains a lot. And I love that. And I guess, so we were talking before I hit the record button that you've had your blog for how many years do you think? It's coming up on about 17 years or so. Yeah. You win the medal for yeah you win the medal for longest personal it's so long i don't even know the exact yeah exactly that's crazy now thankfully you can't read most of that because that if you do the math

on my age that goes back to high school nobody needs to read rid of road in high school do you still have those who's floating around or they're uh yeah actually my computer blew up the other day so i got a chance to dig through all my backup drives and found them there. So they're not online anymore, but they are archived somewhere. They're somewhere. So you can refer back to them just for kicks. So has your blog, I'm just curious, has your blog evolved, I guess, quite a bit? Like, did you always talk about investing?

No, not at all. Actually, that started mostly around 2008, just before things started getting really exciting. Yeah, no, that was a crazy time, for sure. That's when I started talking about investing on the blog. And before that, it was focused on like video games and net neutrality and issues of that sort, talking about hybrid cars. So it's a personal blog and just my interests have kind of shifted over the years.

And at the moment, it's largely personal finance. I will still put up the odd post about, you know, my kitty cat or politics or what have you. Yeah, I'm sorry that you lost your cat by the way. Oh, thank you for that. And hopefully it's a distant memory by the time this goes live on the site. Yes, of course. Curious also, where did this name Holy Potato come from?

So that dates way back to high school um back to some of those in jokes that you have with your high school friends that don't make any sense to anyone in the outside world so i was born and raised in toronto but my parents come from prince edward island and i would go back to prince edward island for like a month at a time uh in the summers to visit all my relatives and hang out there with my parents and whatnot. And my friends would be like, you're gone all summer. Like, what are you out there on the island worshiping the holy potato of the island people and whatnot? And it just kind of stuck. That's amazing. That makes, yeah. Okay. I could see that. Okay. So you have this blog, you get into investing.

What kind of motivates you to, you know, okay, I'm going to write a book? Because that's like a big thing to sit down and do. And how long did it take you to write it? Oh, it's painful to say. I added it all up very approximately, and it came out to somewhere around 800 to 1,000 hours for everything. Oh, my gosh. And did it

take you several years or uh that was over the span of about eight months wow wow that was using up a lot of uh vacation days from work yeah using up a lot of weekends and evenings and burning the midnight oil and yeah just getting her done wow and it seems very popular as i mentioned to you earlier um off the show i was trying to find your book i had it and then i wanted to finish it uh last night and then i forgot it at work and i'm like oh crap maybe the library will have it and there was like 20 copies and they're all out i'm like damn it yeah that's pretty i really like seeing that logging into the library i check like every week at least to see how many holds are on it i guess every copy's out it's amazing do you get lots of questions from readers that are like they want more information or thank you for outlining how

the hell i do index fund investing i do uh the sort of questions have sort of trickled off now and the first couple readers i think were a lot more engaged people bought it like right when it was released because even though there were fewer copies out there, I was getting more questions. And these days, even though sales have started to pick up a little bit, I'm getting fewer questions. Okay. Maybe it just means you've explained everything in the book, and they were like, all right, I get it. I hope so. And I also put up some clarifying things on the website under errata to help people a little bit for parts where I was a little bit confusing in the book too.

So for listeners who may not know what your book is about, it's called The Value of Simple. Do you want to kind of explain some of the key points that you talk about in the book? Sure. So the book is focused on how you get started investing. So there's lots and lots out there about investing in different ways, why you should invest a certain way, how to really get into the nitty gritty of evaluating stocks and evaluating ETFs and which one is better than the other and trying to really optimize things. And that can lead to a lot of analysis paralysis for people. So what I wanted to do with this book was make a book where people could just pick it up, learn, and at the end actually go out there and start investing. So it talks about index funds, which I like, first off,

for theoretical reasons that they should do better than active funds for holding back fees, but I'm not a huge zealot on that front. If someone wants to go active investing, go nuts. And by active investing, what do you mean? Oh, sorry, by active investing, I mean picking winners and losers in the stock market or bond market, trying to time the markets, all these different ways, focusing on one particular class of stocks, trying to do value investing. All of these can work for some people, but I think most people will find that these are

very difficult strategies to pull off in practice. And it's very difficult to find people that will do them for them at a price that makes sense. So they're not going to get value from advisors or managers if they're paying them two and a half, 3% for some of these mutual funds that are out there. It's very difficult to overcome that kind of fee. So instead, if you look at a low cost way of investing with index funds, first off, it's a lot easier. You don't have to try to pick these winners. You just go for a tried and true strategy that's going to get you good enough returns to meet your goals. And then you can go back to your life. And then also try to focus on how to get people there. Explain in great detail, how do you invest? Where do you even

click on your online platform to put a trade in? Which is exactly what I was so thankful when I was reading the book and how I got introduced to the book was Barry Choi, who I had on the podcast. And we talked about index fund investing and DIY investing. And I told him like, this is all great that you're saying this, but how do I just do it? Like, I just need a guide because sometimes I'm just like, there's kind of information overload. I just want to go into my computer and just log into something and how do I do it? He's like, you're going to have to read this book called Value of Simple because there's screenshots and it's like, click here. And I'm like, this is exactly what I need.

So thank you. You're quite welcome and welcome to everyone who reads it. I hope you enjoy it. I hope you all find it useful. And so that's exactly why I wrote it because I would send my other friends, you know, I'd say, Hey, I'm investing. You should be investing too. You know, as they're graduating, getting jobs and I was still stuck in grad school and they were having money to invest. I said, you should start investing. And I would, you know, give them some books. I'd say, here's a, you know wealthy barber, or here's something else to kind of get you interested in personal finance. And then here's something else to get you interested in investing, like

one of the John Bogle books on common sense investing, something like that. And they'd say, okay, great. I see the appeal of this index investing strategy. So I got to go out and get some index funds. How do I get an index fund? There's another book out there. There's several that are like hundreds and hundreds of pages long, just hammering home the idea of why index funds. Yeah. But not how. But not how. And so that's what I wanted to focus on here is filling in that gap of how do you actually open a brokerage account or open a mutual fund account? How do you actually get money into it? How do you buy a mutual fund and put it into a TFSA or RSP to

shelter from tax? If you're out of room, how do you report on your taxes? And even down to like little things like my very simple personal plan for my financial plan. I've seen lots of books that said your financial plan should include, and it's a little bulleted list. And I've never actually seen someone else's financial plan unless I wanted to pay for one from a planner. And I was like, okay, well, you know, I've been in do it yourself guy. So this is what my plan is. I'm going to share my exact plan with everyone and then they can sort

of see what you know and it's slightly it is simplified so that it you know is relatable but like that's pretty much my plan and so that helps give people an idea of what should go in there not just as a bullet list but like okay let me delete the values for john and put in my own and exactly how am i going to actually use my plan? Because everyone talks, well, your plan's important, but how do you use it? It's like, well, when the market starts crashing, pull out your plan. Yeah, exactly. It's a plan for a reason.

Yes, exactly. No, that's awesome. Especially since I think the one, like I love reading personal finance books, but I do find a lot of them, yeah, explain the why or, you know, in case you didn't know, but then you're like, okay, well, this sounds great. I'd like to implement this. And then there's like nothing. And I think that's kind of the thing with personal finance as well.

You know, it's one thing to educate yourself for sure, but it's also another to actually do. Like there's a lot of talking and like what is the thinking involved, but it's hard to really do it because once you do it, then that's when, you know, the glory happens. I mean, I'm so glad that what's funny that you mentioned in the book, you kind of mentioned a couple of different ways you can go about index fund investing. And honestly,

I didn't even realize that I was doing it when I first started investing. I didn't invest in index funds through ING Direct, which is now called Tangerine back in, I don't know, 2010 when I had a little bit of money to put aside into investing. And I'm so glad I just, you know, I read a bunch of books. I'm like, you know what, I'm just going to do it. And it did take a little bit of time because I didn't really know what I was doing. So it took me a little bit longer than I'm sure it should have. But I did it and I'm glad because, you know, sure it should have but I did it and I'm glad because now it's 2015 I'm glad because all that money has grown if I just put it off and then not done it I would have been kicking myself right now

so I think it's really important to put that information into action and this book definitely helps you get there Great, thank you and speaking of Tangerine, that's actually where the title comes from action in this book definitely helps you get there. Great. Thank you. And, uh, you know, speaking of tangerine, that's actually where the title comes from. Cause I, yeah, I do focus on three particular ways of going about it. And I try to differentiate those by saying they're trade-offs. So tangerine is the most expensive way that I suggest. And by expensive, I mean that ongoing management expense ratio or the fees that are taken off the top for your investing pleasure.

Then there's TDE Series, which is a little bit more complex to implement than Tangerine, but cheaper. And then there are using ETFs, exchange-traded funds, which are the cheapest way to invest in index funds. And those are another quanta increase of difficulty over TDE series. And some early people reading the book, early versions of the book were saying, well, why are you focusing on these three? Because there are cheaper options than Tangerine.

So like ETFs are the cheapest. TDE series is the next cheapest. Those make sense. But then RBC has index funds that are cheaper than Tangerine. And National Bank has index funds that are cheaper than Tangerine. So why are you jumping to Tangerine now? And I'm going, well, all these other ones are just as difficult to invest in as TDE series. You're not getting any of the complexity benefit and you're just paying a little bit more. So I'm just going to focus on TDE series. The same sort of lessons will apply if you really are

loyal to Royal Bank or National or whatever bank you happen to be with. You can invest in their index funds and it's going to be pretty much the same as how TD is described in the book. But then Tangerine, you're paying that extra cost over some of those other mutual funds, but you get the benefit of simplicity. So it's the value of simple. That's what you're paying for. And I try to also work that in very subtly through the book about going and getting help. I am a do-it-yourself investor. I'm an advocate for people doing things themselves.

But you can't do everything yourself all the time. And so there's definitely times when you want to go talk to a planner and pay for a plan and get that done professionally and do it when it gives you value. So if you're paying these high MERs on mutual funds sold through bank branches or big mutual fund companies, you're paying that every year, and you're not getting a plan drawn up every year.

You're not getting hand-holding all the time. So it doesn't really make sense to do it that way. Instead, I prefer cutting those costs, those ongoing costs to the bone, and then paying for it when you need it. And then that might also bring us into the fee-only directory that I'm trying to put together. I noticed on your blog, which I think is

a great idea, that you kind of drew up a list of some of the fee-only advisors and coaches, mentors, whatever you want to call it. So people, if they're looking for a money coach or investment coach, here's a list of people that do it. And you are one of them.

Yeah, I put myself at the bottom. I didn't see that. I'm like, oh, I see you didn't put yourself at the top. Very nice. Very subtle. Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points.

Visit Superstore.ca to get started. So yeah, how did you get interested in, like, where did this come from? Because it is a kind of, you know, next step. And it's definitely something that I'm interested in personally that I might pursue, not for investments, but just money coaching. So how did you kind of get into that? And I'm curious, like, how is it going? Well, it actually started long before I wrote the book. So back in grad school, grad students have the stereotype of being poor for a reason, because it's true. It's true.

And so we often look for little side jobs to do. And I'm also out there trying to help my friends again with this investing stuff. So, you know, I'm throwing these books at them and they're still not quite getting like, how do I invest? And so I'm helping some of them out. And here's how you set up the account, sitting with them while they're on the phone with the reps and transferring funds in kind and all this nonsense. And then they're like, this is a great service and nobody is offering this little precise niche is how to get set up as a do-it-yourself investor. It's everyone that's out there that's providing these services are doing it so that they can continue to provide those services on an ongoing basis. So I set up a little kind of side business and very part-time. I'm not doing this.

I have a career outside of being a DIY investing coach. So just do it from time to time, a couple weekends, a couple evenings here and there with a couple of clients who need just this level of service so they can kind of get off the ground, figure out how to use their spreadsheets and set them up to track everything, figure out how to open an account and get it funded and actually do the transaction without actually having the advice component to it because they're figuring it out on their own. I'm just saying, here's how the mechanics work. At one point I was calling it investment technical support.

Yeah, that's a perfect way to put it, definitely. So I was doing that and I was seeing the same sorts of issues kind of come up as I was helping clients and that's what led me to write the book. So I was trying to make myself obsolete with the book. And in some respects, I think I have been successful with that because a lot of people are kind of reading the book and getting up and running and started. And on the flip side, I've also kind of raised my profile by putting a book out there. And so now I'm still getting about the same number of clients coming in. That's very nice. And I think it's so important. I kind of wish, yeah, someone,

you know, back when I was just getting started, I could turn to you and be like, listen, I don't understand this, this and this. Can you just help me and guide me through it? I'm pretty sure that would have saved me like years and a lot of time. So that's awesome that you're doing that and that you're helping people, you know, just figure out investment and take the complexity out of it. And I think that's the hardest thing about, you know, investing. Lots of people don't even want to go there. And I used to be like that myself. I'm definitely a lot less scared of it than I used to be.

But I think a lot of people are like, well, I'm good with, you know, just learning about saving and budgeting and kind of the basics. But when it comes to investing, okay, I'll just maybe put a little bit in mutual funds and then I'll just leave it. And I don't know, it's just not my kind of forte. So I don't want to, you know, people are just, I think, afraid of the unknown and just the risk. Because yeah, if you, you know, pick up the Globe and Mail, it's, you know, kind of scary. Yes, exactly.

If you read that, the investment section of that paper, I'm like, oh gosh. So I can see how you can help a lot of scary. Yes, exactly. If you read the investment section of that paper, you're like, oh gosh. So I can see how you can help a lot of people. Yeah, and going back to talking about just picking up mutual funds, that's a common way to go, especially for those people that just kind of think about investing for the span of a couple hours right before RRSP season when they're just trying to grab a tax return refund on on the their rsp contributions and then you end up with you know the what was uh the clever term that someone gave it advisor six pack or something like that advisor two four in many cases yeah where you just pick up a different fund every year then you've just got this hodgepodge of stuff that that's in your

portfolio and yeah and you know trying to make sense of why any of it's there years down the road, especially when some of it starts to get into trouble. You're like, should I hold this? Should I dump it? I don't even know why it's there in the first place. So it becomes quite difficult. Yeah. One thing that I just popped into my head when I was reading it, cause it was something like, Oh, I need to write this down so I can talk to Josh, my husband is, uh, so like we, you you know have investments in a couple different areas um and we're interested in trying out index investing because right now we just do mutual funds but um one of the things you talk about in your book is just writing things down and

tracking things and i think that's something that lots of it's a step that lots of people miss because you don't know if you're doing well or not well, unless you really look at the data and break it down like that. So I don't, do you want to kind of talk about like what kind of, you know, once you've kind of figured out, okay, I'm going to do this. What, what kind of tips would you have for people to, you know, maintain, I guess? Well, it depends on your personality and what you want to get out of it too. So if you're not someone who likes to track and you don't like spreadsheets, one of the beautiful things about RSPs and TFSAs, your registered accounts, is you don't have to track it.

The government will track it for you. Yeah, that's true. You don't have to track anything to report it on taxes. So you just kind of throw some money in there, buy some funds, and let them grow over the years. And then when you draw it, you deal with whatever amount you have in cash to withdraw. And that's about it. And that's a great way to go.

And with the TFSA and RRSP combined, most people have enough tax-sheltered room that they'll never need to worry about a non-registered account. Yeah. So many people these days can just invest completely sheltered room that they'll never need to worry about a non-registered account. Yeah. So many people these days can just invest completely sheltered accounts. And that's, I'm implying young people are starting out. Older boomers who kind of have big non-registered portfolios aren't going to be able to cram that into the TFSA that's only a couple of years old. But by the time we're older, our TFSAs will have grown along with us and likely be sheltering everything.

So there's no need to be tracking. On the other hand, if you're someone who wants to be an active investor, then it's really incumbent on you to track your active investing. Because unless you're getting entertainment value out of it, if you're not outperforming the indexes, then what are you doing it for? So you can index invest extremely easily. It only takes a couple minutes or hours per year yeah to get everything set up and running awesome uh you can automate almost all parts of it so then it just kind of runs in the background and you don't have to dedicate thought cycles to it it just happens and then you get to retirement you go look i've got this test day i'm fine

and uh you know it takes the stress out of your life but if you are someone likes to track then yeah you can set up some spreadsheets you can use quicken there's a bunch of tools out there and you can see how you're doing yeah so um kind of uh wrapping up i am just curious what um what kind of maybe just one or two tips or pieces of advice what would you tell someone who is you you know, someone like me, who's like a millennial in their twenties that is just starting out. Um, and what, you know, who hasn't invested or is, but is thinking about it. And I'm curious, what kind of advice would you give for someone who's maybe in their later thirties or forties that is just getting into this as well? Would your advice, I'm going to say you're probably getting different kind of pieces

of advice or the same? No, it would be pretty much the same. It's not until you start getting closer to retirement in my mind that you're going to really change that advice up much. So while you're in your accumulation years, you're just going to focus on finding some reasonable balance. And one thing I'm going to talk about with reasonable balance is that there's really very few precise splits in investing because all of it relates to what's going to happen in the future. And we don't know what's going to happen in the future. We've got some idea based on what happened in the past, but we can always be surprised. So I'm very suspicious when people say that their asset allocation is precise down to two decimal figures of percentage. Like it will be when you just divide what you currently have, but as to what you're planning for, it's kind of silly to

get that precise. So, you know, I'm thinking hazy ranges, just get something that's good enough and then get off to the races and go and get back to the rest of your life. Yeah, exactly. And you definitely kind of hammer home in the book, which I totally agree with, because this is, you know, no brainer. If you are just starting out and you want to, you know, invest, but, you know, have your money tax sheltered, do the TFSA first. Yeah. So the RSP can work better for people depending on various circumstances. So the RSP and TFSA pretty much always went out over non-registered investing. And the exception is for people who are very low income. And in that case, a non-registered account is likely to work out better for them than an RRSP. In particular, because if they

continue to be low income through their years, then the RRSP will lead to clawbacks of guaranteed income supplement in retirement. So if you're under rough numbers, $30,000 in income, then focus on your TFSA, and then if you have more to invest, you're non-registered. But if you're at that level of income, it's not likely that you're going to have more than you can fill your TFSA with. And then otherwise, yeah, use your RSP, use your TFSA.

I'd like to say TFSA first because you can always change it later because the TFSA is so flexible, you can take it back out. So when you run the math and see whether you're going to get more benefit out of the RSP versus the TFSA, then you can fix that later. But don't get hung up on trying to optimize that. Go ahead, just use the TFSA for now. And when you eventually get around to hiring a planner for a more detailed plan or sitting down and devoting a couple hours or a day to making a more detailed plan yourself, you can run the math and figure out which one's better and then move into the RSP if that's what you want to do. Awesome. Well, thank you so much for joining me today. Thanks for having me.

You're welcome. And again, thank you for listening to episode 25 of the Mo Money Podcast. Make sure to check out John's website, holypotato.net for all of his blog posts about personal finance, investing and his life. And of course, the show notes for this episode, you can find at momoneymohouses.com slash 25. Thank you again for listening. Make sure to give me your feedback in the form of an iTunes or Stitcher review. And I look forward to seeing you next Wednesday. My episode is going to be with Rachel from Adventures in Mobile Homes. And we're going to be talking about mobile home investing, something I had no idea about. But we get into all of the nitty gritty next Wednesday.