The Canadian Investor - Robo-advisors, preferred shares and 6 stocks on our watchlist

Episode Date: June 21, 2021

In this episode of the Canadian Investor Podcast, we talk about: Recent news including the U.S. fed update and developments on the inter pipeline offer by Brookfield Six companies on our watchlist The difference between preferred shares, common shares and bonds Historical events causing a market correction Robo-Advisors and how they work  Tickers of stocks discussed: DOO.TO, TWLO, MELI, CHWY, INTU, SHOP.TO Getstockmarket.com Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital BAM list of preferred shares: https://bam.brookfield.com/stock-and-distributions/preferred-shares See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

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I'm Brayden Dennis, as always, joined by Simon Belanger. Simon, before we kick off this episode, I just want to let you know that a guy just dropped off some new golf shoes that I ordered from Adidas. He came in this little minivan. He was wearing a bright colored TFI international jacket on. And this guy was buzzing, man. So you got to love seeing the companies you own in action.

And this guy's a Jenga champion of the world with cardboard boxes in his van. So it's always good to see that. Yeah, it's pretty sweet to see a company own an action. I don't recall having a delivery from TFI, but I'll keep an eye on it. Yeah, their last mile delivery segment has really taken off, as you can imagine with the logistics and transport company like them. So it's always nice to see that growth segment kick off, especially when it trades for so cheaply back when I was buying shares. All right.

It wouldn't be the Canadian Investor Podcast episode with some news on what's going on with the Brookfield Interpipeline bid. Can you give us the spark notes? Yeah, so there's more drama happening or some more development happening with the Brookfield Interpipeline offer. I made a little mistake last time that we talked about it. So it was actually a cash and stock deal that Brookfield offered to Interpipeline to up the Pembina offer and now they've come back with a all cash offers or don't no longer capping at 5.56 billion the amount of cash that they can use it'll

be up to the shareholders what they want to accept whether they want Brookfield shares or cash and on top of that they said that they may even up their offer if they're successful in challenging the $350 million break fee that Interpipeline must pay if it calls off the friendly all-stock deal offered by Pembina Pipeline Corp. Interesting to see. I mean, I think the one concept I'm seeing is brookfield is definitely going to purchase uh interpipeline i think they're they're much better position than pembina and obviously their offer seems a lot more attractive and you'd have a hard time recommending pembina over brookfield even if pembina ends up upping their offer a little bit because it will most likely not be a

cash deal and an all stock so that's never as attractive yeah i'd be shocked if flat doesn't win this one he's really really gunning for it uh let's move on to a new segment called what is on your watch list these are stocks we do not own uh that are on our watch list. Of course, do your own due diligence, non-investment advice. All right, I'll fire off my three with really quick thesis on why they're on my watch list. Number one is Bombardier Recreational Products, ticker DO on the TSX, and then DO with an extra O on the NASDAQ. BRP manufactures recreational vehicles like Sea-Doo, Skidoo, and more. They own tons of different brands. You cannot get your hands on a Sea-Doo, a Can-Am, Skidoo's when the winter comes right now. Obviously, it'd be better if their supply

chain was able to handle this volume and we could see some growth. But I see really easy comp sales growth over the next two years. The demand is white hot. It's going to stay really hot through past COVID, in my opinion. They're going to flex some pricing power. Right now, Simon, I'm trying know, a couple seasons of use is going for about 40 to 50% higher than the MSRP listing price that BRP sells them for new. So holy smokes. Number two is called Twilio, the API first company that enables businesses to send communications mostly via SMS. They've made

some acquisitions and taken over some email communication businesses as well. It is a tool for businesses to easily connect and do customer communication. I think the business has this first mover advantage. They're doing stuff that no one else is doing. When you get a message from Uber saying your Uber's there, that's Twilio powering Uber's communications. And third, a company I've talked about before on this podcast, MercadoLibre. MercadoLibre is like Amazon, Shopify, and PayPal in one on steroids dominating Central America and South America. Their biggest market is Brazil followed by Argentina and I forget the other ones, but those are the big markets. All through Central America and South America, they are extremely dominant. The company is super expensive, but when you look at the opportunity, it could be really cheap in five years.

Only time will tell. Yeah, I'm not surprised, especially with BRP. I've recently bought a mountain bike, and obviously it's a bit different, but in the same kind of category, something you can do outdoors with the pandemic going on. And it's extremely difficult to find a road or mountain bike right now under uh you know affordable price point so i had to actually start looking in last december and i was able to get one in march and i had to actually up my price point as well so it gives you an idea that i can totally believe what you're saying that i'm selling for more dude i called local dealers not a single one set they're all like oh no you're not

going to get your hands on a cd this summer but you can get uh you know for next season you can get your deposit in now yeah yeah it's the same thing for sure same thing for mountain bike i have a buddy of mine who's looking for one and it's pretty much like that right now you either get lucky um they get a delivery that they're not expecting you put a deposit and if not you're most likely looking for 2022 so it's also been a low-key like long-term compounder brp it was literally the best asset stripped out of bombardier and uh and it's funny because i thought the pandemic would when it started last year i did not think they would do well, I did not think they would

do well because I did not think that governments would do the amount of stimulus that they did. So I thought it was an easy way for people to cut expenses, to go away and not purchase those kind of vehicles. Like the used market would just be flooded with them or something. Yeah, yeah, exactly. and obviously i underestimated how much money they were able to to put in the economy and i was a lot of people had extra savings too right and this was just like a good toy for some people to get whether it's in the winter an atv all year round or a cdu in the summer i mean they're just so fun too right so just goes to show though that you can kind of project something or think that something

will be logic and happen a certain way and i'll look back i'm looking back now and i was obviously completely wrong on that so my top three that i'm on looking at right now at my watch list one i've talked before a little bit mentioned on this podcast is Chewy, ticker CHWY. Chewy does pet food delivery directly to your home. I don't believe they're available in Canada right now. I know they're available in the US. I still need to do some research on it, but very attractive even post-pandemic. I have a dog.

I mean, it's always annoying to go to the vet just to pick up the dog food so I can see how attractive that can be. The next one is Intuit, ticker I-N-T-U. And like I always say, I will add the tickers in the show notes. If you're not sure or you don't have time to write it down, feel free to just check the description. Intuit, you may be familiar with one of their most popular software, TurboTax. They have a bunch of other software. I think QuickBooks is bigger than TurboTax. I'm not sure. Yeah, but I mean TurboTax people are pretty familiar with QuickBooks as well.

So they have a bunch of different software. So it's a software as a service play. They've done really well over time. I also need to do a bit more digging on that, but something very interesting. The last one on my watch list is Shopify. So ticker shop.to. I think everyone knows Shopify at this point. We've mentioned it.

Again, it's a bit more of a valuation thing. I'm not saying that I wanted two times sales or anything like that. But if there would be a slight pullback in the valuation, I would probably pull the trigger and just start a position in Shopify. The growth, the potential of that market, they've executed as well. They also invest and they evolve with technology. So I mean, their track record is there and the opportunity is huge for Shopify. Yeah, I like them. Intuit's an interesting compounder. They've done so well. I use QuickBooks. I am a subscriber to QuickBooks. I use them for their payroll services as well. And it's interesting in the business,

you know, when you're using it and you're like, as I grow, I know that I will be spending more and more money on Intuit over time. And it's really sticky. It is incredibly sticky because it takes a lot of time to set it all up when it comes to accounting, tax, payroll, get your employees in there. No way am I switching once you get going. So it's extremely sticky and the customer is going to spend year over year more money as the company grows on the platform. And they have a really strong market share, a great product, and it's priced really nicely if you're just starting out too. So they won me. They won me over and I looked at all kinds of software. So I like Intuit and QuickBooks is a great product. Yeah. Yeah. When you're used to software or a system or whatever you use, it's very difficult to switch to something new if

you're used to it. Just take an easy example that people can relate to is someone using a Windows computer versus Apple. People will tend to be very loyal on whichever operating system they're using. I have an Apple, I have an iPhone, but I love my PC and I don't think I would be able to switch to a Mac. And I know you're the other way around, right? You have a Mac and I made the switch to a Mac. And I know you're the other way around, right? You have a Mac and I don't think you like to switch. To Mac. But most people won't do that switch or there's still a learning curve, right?

There's a learning curve. So that's just an easy example. Yeah. No, you're right though. I mean, when it comes to hardware and software, there's that switching cost. When I think of software that's really sticky, think of Autodesk.

You've had engineers and architects who live on Autodesk for eight hours a day for their whole career. Good luck telling them to switch from AutoCAD or Revit. It's just not going to happen. The switching costs are way too high, and they are well-versed in the software, and it takes decades to master so that's kind of the the learning curve becomes the moat which is has its pros and cons exactly if the software does its job and you have a good experience you'll be hard-pressed to get someone to switch all right we saw an interesting uh announcement from the fed was it wednesday uh wednesday or thursday yeah I don't know. It's all a big blur work from home. What did the Fed say? Well, the Fed just said a bit more of the same, what pretty much the market was expecting. Inflation numbers came out. Inflation was 5% year over year in May. Obviously, these are official numbers, so it may not necessarily reflect what you're seeing in real life. Could be more, could be less than that. Keep that in mind.

They are signaling that they will most likely hike interest rates. They're predicting potentially two hikes in 2023, which is a change of what they were saying previously. Previously, they were not giving any timeline. So that is a pretty significant change. People tend to hang on a lot to what the Fed says and doesn't say in these updates. So that's always interesting. They're sticking by the inflation is transitory dialogue, I would say. You can't see me on the Zoom call, but I'm smirking right now. Yeah, I find that a little interesting. I was listening to another podcast earlier this week, and the fellow on the podcast had a really interesting take is, when does it not become

transitory? Because when you're a consumer or a business, if you're seeing the price of what you're purchasing go up constantly on a month-to-month basis, even if it's not huge increases, but you're feeling the increase, at some point, if it's something that you can buy right now and avoid that increase in price, you'll probably do it. If everyone starts doing that, consumer and businesses, do it. If everyone starts doing that, consumer and businesses, then that transitory inflation becomes more and more, not necessarily permanent, but keeps on going for a longer period of time. It will be interesting what happens, I think, throughout the summer up until the end of the year. They've never really defined what transitory is. So it's, I mean, make your own definition, I guess.

I don't know if they mean six months, a year, two years. They don't really define it. But that was something interesting. They're sticking by their guns. It'll be interesting to see how long they stick by to their guns for that. The commodity space is really interesting to see. Firsthand and talking with friends who are in tier two, tier three manufacturers. How do we flex enough pricing power when our inputs are steel and lumber?

We can't just flex a 4% price increase on our catalog when steel and lumber have 3x'd in the last 16 months. So it's very interesting to see. And the supply chain right now seems all kinds of crazy going on. But I guess we'll see. I mean, the Fed saying stuff sometimes you know, sometimes it's just a bit of a meme. You know, how can you really take a lot of it seriously? But, hey, I guess we'll see. The commodity space is going nuts from what I'm seeing anyways.

Yeah, and there's always that fine line for them, right? They may be thinking one thing, but they're always cognizant of how the market will react so they're always really careful about their words I don't want to bore people with inflation but I know it's a macro thing but the reason you invest is so your money keeps up or goes beyond inflation and you increase your buying power over time and it's a really important concept whether you just want to know a level you know a basic level that's why you invest is because you want to keep that purchasing power or ideally increase it over time you even get a guy like buffett during the agm who how often does buffett candidly talk about macro like rarely very rarely man very rarely he doesn't he doesn't completely stay away from it

but it is rare and he was just like yeah we're seeing it in berkshire right now our our supply chain costs are very high and he even used that scary i word inflation and how often does buffett care about and talk about that stuff? He always says, who cares? Just own good businesses, look at the micro. So it's funny to see someone like the Buff Dog talk like that. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones,

all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. All right, enough macro talk. We haven't done a section on pref shares ever. And Simon,

you got a little segment here about pref shares. Give us the lowdown. on. You got a little segment here about pref shares. Give us the lowdown. Okay. So for those who've never heard about like what Brayden is saying is preferred preferred shares. You'll see those quite a bit, especially for companies that already pay a dividend. So what are preferred shares? They have a higher claim to assets distribution than common stock one of our earlier episodes must have been last year I explained a bit more how bonds and debt work how they have priority over regular shareholder if a company goes bankrupt well it's the same kind of reasoning here the preferred shares will have a higher priority if the company goes bankrupt over its asset versus common shares but

a lower priority versus debt or bonds so preferred shares they will vary based on the type of preferred shares issued they have a set dividend at regular intervals and they have priority over common share dividends they must pay preferred dividend in arrears if they miss a payment before they reinstate the common dividend to common shareholder there's no voting rights there's fixed dividend payouts means that they trade at a much more stable price which means less downside but also less upside because the likelihood of capital gains is much less likely for preferred shares because there is a redemption value associated with all these shares. Although there's not necessarily an exact time limit, but the company can always buy those back at the redemption value or the base value for those

preferred shares and there's no limit to the amount of different types of preferred shares a good example of that is our good old friend bam oh god have you ever looked have you ever looked at all their preferred shares they do oh man it's crazy so when you type in brookfield like they already have so many tickers right because they yeah and split up the whole business and listed them all the entities uh under all these different brookfield entities but then there's all the prefs as well so if you go on stratosphere and search by name not by ticker and type in brookfield you can literally scroll for like five minutes it is absurd yeah it is not not all companies have preferred

shares obviously tends to be a bit more dividend stocks that will also have preferred shares and what I'll do is I'll add a link to the Brookfield preferred shares link on their official website and it's just kind of like you just said it's it's funny to look at Just for the sheer amount of shares and I know it can be a bit confusing But that'll help people wrap their heads around it And the last thing about preferred shares is there can also be convertible preferred stock So this allows the shareholder can to convert the preferred stock to common shares under specific circumstances the preferred stock to common shares under specific circumstances. There's obviously more upside than normal preferred stock. And it's typically something that will be negotiated by

institutional investors if they're investing in a company. I know Buffett has done a few of these deals. I know a couple of years ago, there was an oil and gas company where he got 8% dividend through preferred convertible stock. I don't remember the exact company, but you may remember that as well. So there was a, that's like a classic Buffett deal. Classic. And so there's just, um, the last thing I was going to mention. So there's just, obviously these are probably better things for people seeking a stable higher dividend. Someone that would be attracted to bonds, for example, may be attracted to these preferred shares. There's a lot less of upside, like I just mentioned, compared to common stocks.

There's no voting rights. So make sure you know what you're getting into if you do buy preferred stock. Personally, I don't own any. Do you, Brayden? Never have. No. So aside from confusing yourself when you're trying to buy BAM shares, we don't have any. So that's a bit of the lowdown for this. Just if people were wondering why there's so many tickers when they search Brookfield, that would be the reason. when they search Brookfield, that would be the reason.

Yeah, it's one of those instruments that it's like what I like to call with high yielders, stable blue chippers, is a bond-like stock instrument. And I think I'd rather own prefs than bonds. And there's some interesting arbitrage sometimes in the pref prices as well that I've seen. But again, it limits your upside in a major way most of the time. So I would much rather own the common stock. But I can see the appetite for preferred shares. I also like with your cute little French accent, you can't say the word preferred, which is preferred. Oh, you just nailed it. I don't know what you're saying. I don't know what you were saying before, but I liked it. It depends if the caffeine's kicking in or not. I think that's, that's it. When I'm tired, the accent comes out a bit more.

I am shaking from coffee right now. I need to stop. I'm literally drinking a coffee. I do not need one, but got to love caffeine addiction. The last thing I would mention here is, yes, they're less risky than common shares if you're looking at a company going bankrupt, but if the company is already not in great footing, you may want to reconsider investing in that company in the first place. Always keep that in mind because obviously common shares of a great company will be less risky than preferred share of a company that may be going bankrupt in the next year or two. Yes, well put. Yeah, that's good to mention that. All right.

Let's move on to a segment I've been meaning to do for a while. We keep pushing it back because, I don't back because hopefully this doesn't take too long. I'll try to rifle through them because this is kind of a long list, but it's only a couple of pages. reasons to sell stock on a narrative perspective. There's always some reason that the headlines have to tell you that stocks are going down. Even if there's no real good reason, there's always a narrative. Right now, it's the inflation narrative. And we keep talking about it, so we're not helpful at all. But there is always a narrative out there that exists that tells you you should be pessimistic. When Braden on the Canadian Investor Podcast is here to always be that voice of optimism as a long-term investor, needs that extra little push of optimism because long-term owning stocks is a good way to go,

but you need to be focused on the long-term. All right, so let's talk about all the reasons to sell. In 1901, there was the panic of 1901. Wow, really creative thing. So I picked an arbitrary timeline of 1900 to now. I figure over 100 years. There was a severe drought and stocks sold off in a major way. In 1907, Theodore Roosevelt threatened the reign of monopolies across industrial sectors, notably railways. In 1907, stocks sold off in a major way. This sounds like when FANG stocks

were selling off when the Fed is telling you they're too monopolistic with the big tech companies and there was deals all over the place. See, history does not repeat itself, but it rhymes. You're going to hear a lot of that. Okay, the Wall Street crash of 1929. It was a speculative bubble, Okay, the Wall Street crash of 1929. It was a speculative bubble, apparently lasting four years. This crashed and the Great Depression began. So the recession of 37 and 38, the economic recession called the Great Depression, stocks sucked. We probably could do a whole episode on this one. Yeah, I'm learning some history right now because I didn't go through all of them.

1962, there was what's called the flash crash. I've heard about this so much in May of 62. There was a flash crash. Stocks sold off in a major way. There was another crash in 73. Bear market of 23 months, which is pretty long. bear market of 23 months, which is pretty long. Oil prices, mining, downfall of the Heath government. I don't know what that is. It sounds like it's a UK thing. In 87, Black Monday, very infamous. The Dow cratered. There was circuit breakers put in place to never repeat Black Monday.

So did you know that they instituted circuit breakers across the markets because of the crash in October of 1987? Yeah. You did know that? Okay, yeah. 20% plunge basically like instantly on the Dow S&P. I don't remember Black Monday. I was a little too young.

It was Baby Simone. Baby Simone. and the dow and s&p i don't remember black monday i was a little too young was that baby simone but baby simone yeah i wasn't even alive yet so people on the podcast are like oh it's kind of young uh friday the 13th mini crash never heard of this one a failed leverage buyout of the united Airlines causes a crash. In 1990, Iraq invaded Kuwait. In 1990, oil prices got shocked. The Dow fell 18%. Whoa. It was a recession approximately eight months. I don't remember that one.

I was pretty young, but still, I don't remember that one. Black Wednesday. one i was pretty young but still i don't remember that one black well i remember the uh i remember the invasion a little bit but uh i obviously was not interested in stocks at that point you weren't buffett buying stocks at 11 years old oh i was you actually younger than that yeah black wednesday in 1992 the europe European exchange rate mechanism. What does that mean? The conservative government in the UK was forced to withdraw from the pound sterling. Okay, whatever that.

Honestly, like, you know, I'm so honest on this podcast. I have no idea what that means. I'm not sure either. October 27, 1997, a global stock market crashed because it was a, oh yeah, there's big recessions in Asia in the late 90s. Asia's economy was really rough and it lasted a while. The dot-com bubble of 2000. You could buy anything with dot-com and it went up 10% a day until it didn't.

In March 10th, the bubble collapsed. If you bought Microsoft stock the day right before the bubble collapsed, it took until October of 2016, 16 years later, to get a positive return. What is the takeaway from that? Even good businesses, you have to pay a reasonable price. What is the takeaway from that? Even good businesses, you have to pay a reasonable price. And that's a very good example. 2001, the unfortunate September 11th, Twin Towers, the terrorist attack caused 40 billion in insurance losses. One of the largest events ever. Stocks sold off in a major way that was a really scary day man that was a really really scary day yeah i remember i remember where i was at which class and everything

yeah i was in high school you were in high school yeah i was in elementary school and i remember just like everyone just got sent home i was like what is going on uh right some older folks on the podcast were like wow these guys are young uh stock market fun fact about that i actually still have the uh local newspaper from uh september 12 2001 well september 11th that happened oh yeah the next day after i'm like i'm like simone come on man you should know that uh okay the day after yeah that's probably a spooky newspaper for sure uh oh yeah because the newspaper comes out the next day wow exactly wow nice brayden nice okay october 2002 stock prices collapsed sharply um they had just recovered from the lows of the September 11th attacks. I think valuations are pretty frothy.

Bear market, 2007 to 2009. You ever heard of the great financial crisis? That was a bad time to be in stocks. It was a great time to buy stocks just right after that. But we don't need to get into the great financial crisis. Subprime loans, credit default swaps, boom, banking implosion in 2008. So, yeah. There was a sovereign debt crisis in April of 2010.

S&P downgraded Greece's sovereign credit rating to junk. Ouch. That was a tough scene for Greece. Stocks collapsed. Well, not collapsed, but they sold off. 2010 flash crash. The Dow Jones suffered its worst intraday point loss, dropping 1,000 points before partially recovering. Just a little flashcrash. Flashcrash. 2020, you ever heard of COVID-19? You ever heard of that, Simon?

A little bit. You ever heard of that global pandemic thing we just did? Yeah. We're still doing, I think. Mm-hmm. Yeah, the S&P dropped 34% from february 19th to march 23rd and then what by like june it was back i don't know the date but like i would guess by july stocks were at all-time highs again is that a fair assessment i'd have to go around there i

think last summer yeah i mean just going obviously don't quote us on that but yeah we could pick it up really easily but wow okay so all of these things we've i didn't even mention you know there's been wars there's been i'm just talking about big point declines on the stock market there's been wars there's been. There's been all kinds of crap. And if you invested $100 at the beginning of this period, I just talked about 1900. I know that's an unreasonable time horizon, but it gets the point across. Just $100 in the S&P would be worth $8.62 million and is a 9.85% per annum return during that time period, which goes back to stock market returns about 10% a year before inflation. There is always going to be a reason, as I say with air quotes, to sell stocks. There always will be. They're always going to be a reason, as I say with air quotes, to sell stocks.

There always will be. There's always going to be your buddy at a party telling you, I don't know, there's always going to be Simone telling me that inflation. I'm just giving you a hard time. But seriously, there is always more reasons to be optimistic. If we didn't believe so, we just wouldn't be in stocks, but we are heavily in stocks. So clearly we are optimistic about the long term. Did I miss anything? I think that's a good start. No, I think that was good. And I mean, just to have your back on this, the whole

point wasn't to go into detail for each event. Obviously there were other events too in between, just to show you, like Brayden said, that there's always, if you want to find a reason to sell, you'll be able to find one. Yep. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you

have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questtrade.com. Let's talk target date funds and robo advisors. Exactly. So just to give a quick overview of what both are. So I learned something doing some research for this. So first of all, target date funds. Target date funds are funds that you'll invest in. Typically, you'll see them listed as and listed means usually with group plans. You'll see a target date fund 2035. So this means that you are retiring in 2035 or you'll need the money invested by 2035.

So what it does is just adjust over time to a more conservative approach as you get closer to that target date. I thought they were available for individual investors as well but turns out that i couldn't find anything and they're typically from group plans if you have a defined contribution pension with your employer for example there's a good chance that there's going to be a target date fund yep that's yeah no no uh you're not gonna be able to invest in this just on your Questrade or anything like that. I guess that's the main takeaway. Yeah, but if you do have a group plan with your employer, you'll probably be familiar with that.

So if you see those kind of funds, 2035, 2040, 2045, 2050, that's what they are. Now, robo-advisors are a little similar to these target date funds But with a little more component to them, so they'll collect information From you through typically an online survey when you get started Robo advisors will also provide some of them will provide financial planning services based mostly on algorithms and little to no human supervision. Usually there will be a little bit, but it's typically based on algorithm and based on what you answered for those surveys. Usually we'll have much lower fees than traditional wealth

management services or financial planning services. The portfolio will automatically rebalance over time if the allocations no longer match your questionnaire or the survey that you took or your risk tolerance obviously. They can offer goal planning, account services, portfolio management, security features, financial learnings. They became available to individuals in the early 2000s, although apparently they were available before that for financial planners and financial advisors to use for their the money that they're managing for their clients. Some can even offer tax loss harvesting for taxable accounts. If you're not familiar with tax loss harvesting is you sell an investment

at a loss so you can offset your capital gains. And this is only for taxable accounts. So that's really important. And it may be a subject that we can talk a bit more into detail future episode while comparing all the different accounts. They're typically done at the end of the year and would, like I said, apply only to taxable accounts. You'll sell, then buy back the asset or similar asset to rebalance your portfolio afterwards. So you incur the loss, you offset your capital gain, and then you rebalance your portfolio afterwards. So that's the kind of things that they can do.

Obviously, a very good financial advisor, planner, or tax specialist will be able to advise you and give you some tips on how to do that as well. But this may be a more cost-efficient way of doing it. Then the last thing here is in 2020, Vanguard had more than $160 billion of assets under management for the robo-advisor services called AUM, short. And a few pros and cons. Wait, is that $160 billion, is that just in the robo or does that include the ETF? Just in the robo. Whoa. Yeah, just robo-advisor.

Yeah, they've gained in popularity quite a bit and the fees from what I found in Canada, they'll range from mix of monthly fees to a Percentage on the assets from what I can get from a list. I saw in Canada will probably be between 0.2 percent to 0.7 percent I would say would be around the range that you'll you'll find in these types of services and the investment approach will be and that's one of the big downsides is they will choose which ETF they'll allocate for you so you don't have to do much don't choose but it will limit the ETFs I know that'll be the

money will be allocated to and it might not actually match what you're looking for in terms of an ETF. So some of the pros, like I said, the fees are relatively low, although they are higher than index funds if you want to do it yourself. They use easily liquid and easily tradable ETFs, creates a diversified portfolio based on your risk tolerance and your time horizon. on your risk tolerance and your time horizon there's automatic rebalancing automatically allocates money to the various etfs allowed in that robo advisor service and they're usually pretty tax efficient some of the cons investors like i said can't always change asset mix on their own they use specific etfs usually a handful or at most a dozen so like I said you won't be able to choose the ETF you might want to use that could be listed on the stock exchange redeeming isn't always instant like it may be for a discount brokerage that a lot of our listeners are are using who is this

good for well probably a lot of people listening to us are like oh why would I even invest in that I mean for me I think I would only recommend that to say friends or family that want to invest they don't want a traditional financial advisor they want something that they don't have to do almost no research on it's easy to use you just fill in the questionnaire, you do automatic deposits, takes care of itself, very minimal supervision, and it's relatively low fees. So that's someone I would probably say, you know, something you'll want to consider. Personally, I would not use a robo-advisor service, but you know, it is a service that's probably good for a certain type of people. Yeah, well put. So when we're talking about robo advisors, there's tons out there. The ones in Canada, you get like Quest Wealth that does it from Questrade. Wealth Simple is the big one

that has gained quite a lot of mindshare. And it is, you know, if the options are a robo-advisor and a 2.5% mutual fund, you're a robo-advisor all day. But here's what's going to happen. There's two things that are going to happen. I'm going to tell you, if you want to do absolutely nothing and just have the lowest maintenance required for a DIY portfolio ever. I'll give you the exact holdings to pick, not financial advice. And it is so easy to do it through index ETFs because there's two things happening when you get a robo-advisor. One is that they are just buying ETFs for you. That is something anyone with an internet connection can do completely on their own, in my opinion anyways. And two, you're going to pay more fees than if you were to just buy those ETFs yourself. So I don't see a whole lot of value. But if you compare that to a mutual fund paying 2.5%, I mean, it's a no-brainer.

There's another thing that I want to mention here. Like Simon says, you can go on the site, they say, what's your risk tolerance? What's your personality? The reason they're asking you that is because they're going to put some split between ETFs that are invested in stocks and ETFs that are invested in bonds. If you go on there, you're a 20 something year old, say you're just finishing university, you're 24 years old. You go to one of these robo advisors online, you do the minimum account, a thousand bucks. And you say, are you risk averse? And you're like, yeah, probably. I don't want to lose money. That sounds horrible. I have all this student debt. You know what they're going to do? They're going to put you in some 60-40 allocation, which is 60% stocks, 40% bonds at 24 years old. Puke. Literal puke. If you're 24 years old you should be 100 in stocks i mean really

simon should any 24 year old own bonds probably not uh you have 40 years of compounding before you hit 65 41 i think i think i i give my opinion on bonds yeah he. Like, Oh God, do not give me a 60, 40 at 24 years old. Okay. So on stratosphere, if you go to get stock market.com, this will be laid out for you. I'm going to tell you exactly what they are right now. And the percentage that I would do in this mock portfolio, this is a completely equity-based, broad-based index ETF strategy. And they are all listed on the Toronto Stock Exchange, a mix of Vanguard and iShares. There's four ETFs that will give you the, right now, as of saying this, the lowest cost way to own global equities exposure. Okay.

So in this model portfolio, 15% is in Canadian equity with Vanguard ETF ticker VCN. It is Canada all cap. Okay. 15% of the portfolio. Another 15% in emerging markets with Vanguard ETF called VEE. This will give you stock exposure to China, India, Brazil, and other emerging markets, Taiwan. Okay. 20% in XEF. This is the iShares Core MSCI, you get broad coverage, thousands of stocks in Europe, Japan, Australia, and more developed markets. The remaining 50% is in ticker XUU. You're going to

pay 0.07%. This is going to be the bulk of the portfolio. You own the US S&P total stock market. Thousands of stocks, it's market cap weighted, so you're going to get mostly large caps, but you're also going to get exposure to some of that small cap, mid cap exposure on the S&P and on the total stock market. Overall, most of them pay an average about a 2% dividend yield. You reinvest that, you go on Questrade, you buy all of these for no fees, no cost. Your total fee at the end of the year, if you were to take the percent of the portfolio and the management expense ratio, you're going to pay like 0.1% compared to if you went to a mutual fund, pay 2.5%. If you went to a robo-advisor, you're going to pay probably somewhere around 0.6%. So this is six times cheaper than a robo-advisor

and so easy to do. Four ETFs, you buy them, boom, easy. If you want the exact tickers and the exact percentages, I have a hypothetical model portfolio for members on Stratosphere. It's for you to go see. I did a hypothetical performance since 2016 on this stuff. Pretty damn good just owning these broad global stock exposure. How easy is this to set up, Simon? Like it's frustratingly easy and it is great yeah i mean i personally would anyone who's willing to put a little bit of work in i would definitely advise

to do an index fund strategy because it makes a whole lot more sense. I have seen with my work, though, a lot of people just don't want to put any work in it. And I think those people really are scared of learning and really there's a mental blog. They don't want to do it for whatever reason. You can try to convince them. Then probably these people, something like a robo-advisor is good. But anyone listening to us? Yeah, they're listening to an investing podcast.

Yeah, and that's why I prefaced it earlier for if you have friends or family that are in the category that maybe they're paying too high of a fees through mutual fund and they want something cheaper while, you know, they don't they don't want to hear about anything else. Just basically, you know, I just want an easy way to do it. I never want to check it and all that. They don't want to learn even the basics. Then that's probably the right thing. But if you're willing to put just a little bit of time to learn it, I would go with indexing, obviously. If you were looking for US listed options, I have those as well. I would put 70% of the portfolio in the US total stock market ticker ITOT, which trades on the New York Stock

Exchange in US dollars. And then the rest, which is rest of world, the 30% of the portfolio in iShares total international stock market, IXUS, you buy two ETFs, you are set to go. The management expense ratio on IT02 is 0.03%. That won't even show up. It's basically free in my mind. And that's from iShares, BlackRock. There are competing products. I've said this so much on the ETF side. You're going to find a very similar product from Vanguard or BlackRock, or even the BMO ETFs are pretty low fee as well. They're the same thing. Do not lose an ounce of sleep over deciding which one. It's really not a big deal. Have we got everything for this episode? I think we do, Simon. I think we do.

Yeah. And actually, that you were saying that brought something to mind. I had someone reach out to me on Twitter asking about how he bought a ETF, a specific ETF on the U.S. exchange. And he noticed that pretty much the same ETF was listed in Canada. And if he should sell it to then buy it in Canada. And my answer in this situation is like, look, you've already purchased a U.S. ETF. And my answer in this situation is like, look, you've already purchased a U.S. ETF. You just keep it because if you sell and then you buy, depending if your brokerage charges for ETFs or not, you'll incur fees. You may have some exchange repercussion, exchange rate repercussion as well. If you bought it already, then that's fine.

Just keep it in usd if obviously you have canadian money to invest then it may make more sense to that new money to put in the canadian listed one but if you already have it just selling to buying the same thing on a canadian exchange it could even be for a stock that's dual listed that you ended up buying the us shares versus the canadian one you have it in usd i mean it's not the end of the world i would say avoid the fees you can control that and just keep in the Canadian one, you have it in USD. I mean, it's not the end of the world, I would say avoid the fees, you can control that and just keep in the US one. I think that's a good rule of thumb for pretty much everything in investing is, should I do something that I don't need to do? The answer is always almost no. Across the board,

if you need if you are wondering if you should do something, the answer is always, for the most part, rule of thumb, do less. The less you do, the more returns you'll probably see. Just as a general thought, when I think of, oh, I should probably sell this position, and then I just sleep on it. And I'm like, there's still so much upside, blah, blah, blah, blah. Do less is probably some decent advice. That does it for this week of the Canadian Investor Podcast. Thank you so much for listening. If you're on Spotify, go press that follow button on the top right. If you're on Apple Podcasts, press subscribe or whatever that button is. Give it a rating. Give us a little

five stars. Tell us what you like, what you want to hear on the podcast. We really appreciate it. If you want to go the extra step, you share it with a friend because that means a lot to us. We're growing this podcast. We're going to hit some top charts numbers soon if we keep this up. Thank you so much for listening. Share it with a pal. We appreciate you. Go to GetStockMarket.com. That's my business.

You can see exactly what I was talking about with the model portfolios, not just for ETFs, but for all kinds of business or all kinds of model portfolios, whether it's a dividend growth portfolio, whether it's a flagship growth stuff that I invest in personally. You'll see it all there. And I updated it all this week. Take care. We will see you next week. Bye-bye. The Canadian investor is not to be taken as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.