The Canadian Investor - The Problem with Large RRSP Balances and July ETF Flows

Episode Date: August 28, 2023

In this episode of the Canadian Investor Podcast, we talk about RRSPs and how having too large of a balance can cause individuals to be in a higher tax bracket than expected. We then go over the July ETF data for Canadian and US ETFs. Braden goes over a payment processor company that he has recently put on his watchlist. Symbols of stocks discussed: ADYEN, XSEM.TO, CSAV.TO, CASH.TO, TLT, IVV, VOO, ESGU Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. National Bank Canadian ETF flow report National Bank US ETF flow reportSee 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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the unequivocal Simon Belanger. Today's Monday release, my favorite of all the releases. Simon, we have stocks on our our radar or should i say stock on our radar you're

going to talk about etf flows on your radar stock on my radar and then uh we can talk about rsps and a new stock lending program so lots to get to so this is just stock on our radar correct that's correct yeah i didn't give you enough time. But this is a fan favorite of a segment. It's called Stocks on Our Radar, presented by the wonderful people at EQ Bank. And, you know, you've heard the EQ Bank ads before. But to provide a little update here is that the EQ Bank card now has no FX fees, which is unreal.

So super nice if you're traveling. You'll pay the MasterCard or Visa. I think it's a MasterCard. Yeah, it's a MasterCard card. You'll pay their interchange fees cross-border, but you're not going to pay any extra fees from the bank. And every other bank, they charge that. So we love the nice people over

at eq bank all right jimon have you heard of the the news of adyen have you seen how much the stock has been crushed yeah like 40 or something yeah it's roughly 50 now which is crazy i mean what's the it's the market cap on adyen? It's 24 billion. So, yeah, it used to be 50 billion in market cap stock just like a week ago. Yeah, I mean, I would say Stripe is probably looking at that, scratching their head on what their next move will be if they want and they need to do another round. Yeah, no kidding, because I think they raised it around 90 billion and are now valued at 50

and they have less payment volume than than adyen and way worse margins and no profitability yeah it's going to be a pretty tough comp for them yeah and i think i mean i'm sure you obviously will talk about adyen but i think it comes down a little bit to what we were talking about zoom and uh the last episode and how we were talking it's almost becoming commoditize the service and that's the sense i'm starting to get for a lot of these payment processors where you know these are master you know, they're running kind of the rails. But then anyone who's on top of it or in between of other type of systems. I mean, if you're a major enterprise, why wouldn't you shop around?

I mean, you can really flex your pricing power on those. And that's exactly what Adyen management team said that that's the hardest part about growing right now is that larger enterprises are looking at this as largely commoditized and trying to cut costs and going to localized providers to save money. Yeah. And I mean, you're not in a good spot if you're an Adyen in our stride because if you have a major customer that's saying well if you don't give us a better price we'll go to your competitor like i mean what do you do you you have to you i don't know you probably have to give it to them right yeah now i'm actually gonna give kind of a hot take on why it's on my radar as a stock i i you

know i'm not saying I'm buying it here or anything, but I'm doing more research to potentially think about it. And I think that's kind of the point of this whole segment here. So the stock's down a ton. It's been a business that I've actually really liked to own because I like the stripe and the the Adyen layer of the payments business because it's a lot stickier than just point of sale in my view. And there is a slight developer ecosystem around it on which developers use these payment processors and how it connects with user authentication, how it connects with paywalling on a software-as-a-service app. When it comes to e-commerce and there's just checkouts,

that's a little bit more commoditized. There's not as much state management with the users. But any pretty skilled developer will be able to use either of them, basically. So you're right there. Now, they've seen some tremendous growth here. We tracked processed volume on Stratosphere, and that has grown at over 40% compound annual growth rate since they IPO'd. And they report semi-annually, which is very European. So those who are unfamiliar with the business, Adyen is a Dutch payments company.

And their largest part of their business is being a direct competitor of Stripe. In its simplest form, they let you accept payments. And the stock is getting crushed because one, they mentioned that stuff on guidance. And the main thing is that they saw the slowest growth on the top line revenue in their history. But that top line growth number is still 21% growth year over year. So it's not like they're shrinking. They're just growing slower. And of course, the business is going to eventually grow slower. It's just more of a matter of when. The problem here and why the stock got absolutely decimated is it was a very, very richly valued stock. It traded at very high multiples.

Management comes out and says the growth is going to slow. And we're probably at peak pessimism of this business. It now has that commoditized tag on it that you just discussed. PayPal's getting crushed. The PayPal Braintree business is a competitor of this. That's not loved anymore. Stripe is not loved anymore by VC dollars. We're kind of at peak pessimism of this business model. I'm here to say that I still think it's a really good business.

I still think that there is significant growth ahead for both Stripe and Adyen. It's just not going to be 50%, 70% year over year. And it never was going to be. And now the price has gotten much more attractive. Enterprise value to gross profit has gone from over 40 last week to below 20 today. It's growing at a still really good clip and has a wonderful margin profile compared to their competitors. They have a wonderful culture. It's founder-led. They're cost-conscious, best margins,

and they've grown with way less staff and way less bloat than their competitors because Stripe's been cutting their employees, for example. And they've built it in a way which is no M&A so that they build out end to end every aspect of the payments to build the best optimal experience for customers and largely these like huge enterprise customers that can have everything. And it's well connected because they didn't just kind of like bolt on acquisitions to kind of fit each part of the business that they need. And so they've grown in a way that lets them scale better than their competitors.

And so I'm looking at the stock here and thinking it's still not a cheap stock. It's still not like, you know, basement bargain hunting business. But the future looks still really bright for this business. I like the management team. I love the founders. I think they're excellent. They've grown it in a way that's very sustainable and cost conscious that they can actually be profitable from out of the gate, which is contrary to the Silicon Valley way that this business was built with Stripe. And so, you know, looking further out here, you can still project high double digit, low 20% growth on the payment volume, potentially better margins long term, and a huge runway as more and more payments go to this wave of payments. And so,

I'm pretty interested in the stock here. I'm going to probably do some more research over the next month or two, or if you know me, probably six, and make a decision if it's a pass or play. Yeah, no, I think that's a good point. I mean, I think it's just, it's good to take your time and do research.

And I think a lot of it's good to take your time and do research. And I think a lot of people could, you know, use more time and do more research for the most part. I mean, I think a lot of people tend to have the urge to invest in a business. They see a big drop like that. They automatically think it's a deal. It may be a deal. It might not be. I think, you know, you'll discover that as you

do more research. But I think, you know, it could be a good opportunity, obviously, if people are overreacting, you know, those who sold the stock. Yeah, that's right. And people who already have a lot of conviction in the name that I follow, that I know, are saying, perfect, an opportunity to buy more. I mean, the stock was richly valued. It deserves a haircut. I don't know if it deserves this level of haircut, but it deserves a haircut when management's guiding for slower growth and it's trading at 70 times EV to EVTA. That's to be expected if you're buying very richly valued names. But long term, the story has not changed by 50%. The price has, because it was priced for perfection. And when perfection doesn't continue to execute,

then you face these huge drawdowns. But long term, I mean, the vision remains, the business remains strong. And I think that they have probably another decade and a half of growth. Of course, they're not going to grow at 70% year over year, but I don't think that that's ridiculous that they can keep growing for that long. No, I think that's fair. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app.

Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on

there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. So we'll move on to the next segment here. So I decided to go back. We talked about a couple months ago. So National Bank, they have a monthly report with ETF infls. So I'll look at both of them here. Also put a link for those who are interested and want to look at reports here. Now for July 2023, so not the year to date data, just July, there was a total of 3 billion in inflows for the month. 63% of new inflows were in fixed income. Just shy of half of all fixed income inflows were in money market ETFs. The top ETFs in terms of inflows was the iShares Emerging Market ETF, ticker XSEM. The ETF which saw the most outflows, that was a little surprising, was the BMOS NP500 Index ETF

at $379 million. So that's pretty interesting there, huh? Yeah, that is. Yeah. And we're seeing that Canadians are kind of shifting a bit more to fixed income. It's a little bit of a contrast to the US. They are as well, but it's different kind of fixed income that people will see when I get to the US section here. And in terms of year to date, very similar here, not too much to change. So fixed income is still dominating inflows a year to date with 58% of all inflows. Money market ETFs have 50% of all inflows into fixed income this year. So essentially,

money market ETFs, they tend to be a more short term type of investment in fixed income. So it's really interesting that that's dominating. The BMO S&P 500 ETF is the worst ETF by a wide margin in terms of outflows this year. $1.4 billion has left the fund, which is a drop of 15% 1.5% in asset under management. So not nothing. And the second most outflows saw $487 million in outflow. So that gap between that BMO ETF and the second one is pretty massive. So I don't really know if people are shifting to other index funds that are similar to that, other S&P 500 or maybe broad-based index fund fund but i just saw that

one very i just thought it was really interesting and then the ci high interest savings account etf ticker csav has seen the most inflows this year at 2.5 billion followed by the i shares emerging markets, XSEM that I talked about at 2.2 billion. Horizons high interest ETF, ticker cash rounds out the top three at 1.6 billion. So you can really see that, you know, these kind of cash like saving instruments are, you know, are definitely gaining popularity. And, you know, I tweeted about this this and my opinion here is that look and people kind of push back a little bit but the big canadian banks they just they don't they offer like for traditional savings account and check checkings account they offer really sorry for the language but shit complete shit interest rate on those deposits. And for a lot of people, I mean, when they see that,

there's just not many other options aside from money market funds or GICs that those financial institutions will offer. But, you know, money market ETFs offer a very liquid alternative to that and they give yield that are actually pretty close in line to what the Bank of Canada interest rate is. So for a lot of people, I think it's an interesting alternative. And I think the big banks will have to take note and be more competitive there, which will impact their bottom line, because that's how they've been able to be so profitable is they pay barely anything and they still pay barely anything. And then they loan out that money at much higher interest rate. Well, at some point, if people are saying, well, I'm just

not going to deposit my money at your bank, I'm going to go to another bank like EQ that offers some better interest rates, or I'm going to go the money market fund route. At some point, the big banks will have to change course because they need the deposits or the live blood of our banking system. Yeah, and it's just ripe for a challenger, right? In terms of giving people something that they're actually feeling like they're not getting ripped off, which sounds ridiculous. Like that's been like that for that long. But I mean, pure play oligopolies for been like that for that long. But I mean, pure play all the goblies for decades, build that kind of product. And look, you have here

such a gigantic inflow to fixed income. So you said, what, 58% of all inflows is to fixed income? Yeah, 58%. And more than half of that is specifically in money market ETFs. So kind of that short term, the short term fixed income. Yeah. So we haven't had, I just posted a graph of the Canadian interest rate over, you know, since the late 90s here on this graph. And you had such low rates, basically post GFC until the end of 21, basically, right? Yeah. You can see that chart right there for the beautiful people watching on jointtci.com. And look how much active DIY money there is, or just capital in general, that is new to the

markets post-GFC. So all they know is low rates. You had zero rates post-GFC. They remained low and through 2012, lowered again, and then increased. Pandemic happens, drops back down to zero. So they've been zero or basically zero for post-great financial crisis in 2008. And all of a sudden, it's people like, wait, I can get actual yield on my cash or actual yield on fixed income? Like what a strange, what a new strange concept that is. And I think that's a lot like very alluring for a lot of people, rightfully so. I think what I am seeing anecdotally is really, really, is young new investors that have only been dealing with this low rate environment, now seeing that they can make close to the interest rate on these money market funds or a HISA, some of these ETFs or like one year GICs,

to name a few options, kind of abandoned their equity strategy for this. And that, I believe, is a mistake. Because you should see higher expected long-term IRR on the S&P 500 than these rates. And I get it. It's safe locked in with these GICs on a rate that you couldn't get before. It's very alluring. And putting some of your portfolio in there feels great because it's been unattainable for so long. But I'd be just cautious about evacuating your equity strategy and be very attracted to these high rates. I get it, but also think long-term as well. So I'm thinking about this in two ways. Yeah. No, I think that's a good point. I mean,

I think for me, I see it definitely, I'm more, how would I say that? So I'm more inclined to put a bit more cash on the sideline that's yielding five, five and a half percent. Sure. I mean, I've said it before, cash on the sideline that's yielding, you know, five, five and a half percent. Sure. I mean, I've said it before. I love the bill ETF because it's one to three month U.S. treasuries. And at the end of the day, I think the U.S., you know, the U.S. dollar is king in our financial system. So I do like that one as a savings vehicle, even in TFSA with the withholding taxes.

So you're yielding over four and a half percent on US dollars. Right. So I kind of like that. It just I see it a bit more as a way to like have a little bit more cash and balance my portfolio for volatility. And I still get, even if it's small, a net interest rate of return, as which is something that's kind of nice to have. But with you, I mean, I wouldn't put all my investment in cash. The only reason I think that would be good for a younger investor to potentially do that is if they're really looking to make a big purchase in the next year or two. Then clearly that can make a lot of sense if they don't want that money to fluctuate

and they may need that money at a moment's notice. So clearly, that could be a valid and a good option per people. But if you're not, then yeah, you definitely want a balanced thing. There's more of an argument to put a bit more cash than before. But to put everything in cash, I think you'll probably end up regretting it. Yeah, I agree with that. Like, look, I get it's nice to get a yield for once. I am fully with you. And I know you've been taking advantage of that. It's more so just like audit what you're doing with your cash. If it's not getting a yield, then do something about it. That's I think that's the really important takeaway here. really important takeaway here. Yeah. And that's what's so disconcerting is because I think a lot of people still have a lot of cash in those, you know, savings account from the big banks that are probably giving them like one, one and a half, maybe 2% if they're lucky, or they might be getting, you know, that introductory rate for like three months at like 5% and then it goes down to

one and a half, whatever it is. Definitely for those people. And I had seen some data on the amount of money that's in mutual fund. I'll have to find a link, but I think it's a little similar to that where either people are scared or they're too lazy or they don't want to do it. They think it's going to be too cumbersome. I think it's a little bit similar you know, similar to the mutual mutual fund versus ETF as well. So now to continue. So for the US, there are some similarities, but there's definitely some differences. First of all, you know, there's a lot more money in the US as we'll see. So the total, there was a total of 54.5 billion of inflows for july alone that compares to 3 billion for canada but clearly

in the u.s i mean you have investments i mean i'm sure there's people listening that put money in u.s listed etfs right so you have money coming around the world to invest in the u.s where in canada i'm sure there is but not to the same extent. The ETF with the most inflows in July was the iShares Core S&P 500 ETF, IBV, at $10 billion. So kind of a reverse of what we saw with Canada with the BMO one having the most outflows in July. So that was interesting. It was followed by the iShares 20-plus year Treasury bond ETF, TLT, had $ 4.8 billion in inflows by itself which accounted to 33% of all fixed income inflows but this is where it starts being interesting at least for a macro nerd like myself where in Canada you see investors are more interested in the short-term money market funds

but in the US they're actually putting money in fixed income, but the longer term fixed income. So whether investors see that as kind of more value, maybe there's upside in their mind thinking that rates will be going down in the next year. And they think that that 20 year yield right now is very attractive. I'm not sure, but I thought that was really interesting. And only 27% of all inflows in July went into fixed income in the US. And again, that's compared to 63% in Canada. So very different here. And 70% of all inflows went into equity ETFs, with 70% of those going into domestic ETF. Now the year to date US data is a bit different with 44% of all inflows going to fixed income and 51% going to equities. I forgot a word, but I'm pretty sure it's equities

here. So what this shows us is I'd have to go back to the earlier year data, but I think you can make, you know, logically have some conclusions where earlier in the year, there was definitely more going into fixed income in the US. And now we're seeing this shift a little bit with a bit more going into equities. So a bit different than what we're seeing in Canada. I think that could be in part maybe what we saw happen with SVB and the other banks that went under in the US, maybe people were trying to get those deposits away from the banking system into the money market fund, maybe for similar reasons that I talked about, because they couldn't get some good enough yields from the big banks in the US. And they were scared about the how safe the regional banks were.

So they potentially shifted that. But I thought it was just interesting to go over just a really kind of a decent contrast between the US and Canada here. Yeah, huge contrast. Look at the difference of inflows to equity versus fixed income. The US is a lot more aggressively, actively investing in equities compared to fixed income. And they're seeing a big surge in volume on fixed income as well. But you can see a stark contrast. Canadians are yield obsessed, and I think a little bit more conservative in the way that they invest. That's very commonly said in the private markets is that Canadians are much more conservative than the US. Yeah, and more probably income focused.

So that would make sense. But the ones I have a chart of for our joint TCI listeners and do you see the first name of outflows year to date? iShares. The iShares ESG, yeah. The iShares ESG Aware MSCI USA ETF. So, negative 8.8 billion in outflows. The fund has lost 45% of its asset under management ticker ESGU. Oh, God. Yeah. And it's pretty far in front of the second name here, which is the iShares Russell 1000 value ETF. So the small cap or yeah, the small caps is a Russell. So IWD. People are just sprinting to large cap S&P 500.

Yeah, for safety. Yeah. So the second one was that let's round up to six billion outflows but the wow the esg one is really i don't know if it's you know people listening to our podcast or other podcasts like uh you know not telling people but making them aware that a lot of these esg funds are either not performing all that well or just essentially the same as their non-esg counterpart with some little tweaks in percentages. It's just skinned with a different ticker.

That's all it is. And a higher fee. Exactly. So I don't know what exactly the reason is behind that, but I hadn't even noticed when I did the notes that that's the one. People are just getting smarter. like me who are like you know very kind of consciously aware of the environment and carbon emissions calling esg the way the finance industry has spun it as a complete scam yeah it was greenwashing yeah that's exactly what it is so i think people have just kind of smartened up to it like you can't just skin the s&p 500 with a new ticker and a new name and people won't catch on eventually because it's pretty easy to find up.

You just search holdings and they're the exact same. Yeah, no, exactly. So, no, that was the segment on the ETF. Let us know if you like it. I mean, I enjoy doing those. I think they give a good perspective on the market. We can do them periodically. We're due to do thed one as well with the stocks most held by canadian i think that's always a fun one to look at what canadians are buying selling and then you know what's been

in the news recently because oftentimes it kind of lines up with that it's always like Canadian banks, Enbridge, Tesla, Apple, Nvidia. And a random... There's the list. There's usually a random kind of growth name or like name in the news that pops up. Yeah, exactly. But for the most part, you're right. Yeah. Enbridge is usually there.

Yeah, exactly. bridges is usually there. Yeah, exactly. 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. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades, their investment ideas in real time.

And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the App store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you

there. All right. It is the Canadian Investor Podcast. So it's time to talk about some RRSPs. And if you're listening in the States, you have very similar plans. In the States, this is the 401k, right? Yeah. yeah 401k i think you can have it through um a traditional ira would be the roth is the the roth is the tfsa version yeah exactly yeah yeah so you can every time i say rsp just sub it out for uh the account in your jurisdictions because i know we have about five percent of the listeners that are from you know all over europe the states mexico greece and portugal are randomly i think there's like 200 countries yeah if we go there's probably one person and you know every province and territory in canada too that's right uh so it's time for some spicy takes because I have some strong opinions here.

And Simone, you're like, what's that? I said, oh, oh, you are like a resident expert on the different vehicles here in Canada. And so I want you to I challenge you to jump in and also even maybe push back on some of my the things i have to say uh unless of course you just agree with everything i say because i'm right uh because i'm right here so here here it is so in investing i have some strong opinions loosely held you got to be able to change your mind and be open-minded especially with large companies individual companies. Things can change. Here is a topic I just won't change my mind on. I have very strong thoughts on the RRSP and the math sucks if it gets too large, an RRSP getting too large. And the number that I think is too large is unfortunately too small.

The number that I think is too large is unfortunately too small. So yes, I guess I'll make my disclaimer here. I am making a ton of generalizations here. That's kind of the whole point of the segment. I encourage you to do your own research, assess your own situation. Of course, none of this is advice. None of this is financial advice. None of this is tax advice. None of this is tax advice.

Investment vehicle selection and so on are very, very personal. So that's why they call it personal finance. So with that being said, here are my thoughts on can sums of money in an RRSP be too large? And the short answer is yes, absolutely. It can actually be very tax inefficient to have an RRSP too big. Now, this is of course a good problem to have. Oh, you know, I hate having too much money. Poor woe is me. But this is something that you should start considering if you're young, not just if you're at retirement age, because this is going to affect you at retirement age, but this is rooted in decisions that you make earlier to get this a huge pile of money in your RRSP. If you're aggressively pursuing RRSP contributions, yes, good for you, but also there's some things to think about. And that's the main point of this segment is there's

things to think about. There's a good chance you'll have some nice investment returns and your RRSP becomes too large. And it might be that today using your TFSA and taxable accounts might be the right move, even if you want to deduct a bunch of your taxable income. So on a 10,000 foot view, here's the systemic problem that I think that we have right now with this investment vehicle and how it's structured in this country. RRSPs, the amounts that I think are too large to be tax efficient are too small for retirement. And so you can't just use an RRSP because if you want to hit your retirement number that people say are the magic number, it shouldn't all be in an RRSP because

that's going to be too large and be very tax inefficient. Owen W., this certified financial planner, founder of PlanEasy on his website here, he says, in general, an individual's RRSP assets greater than $500,000 or a couple's combined RRSP assets of over a million dollars is when they start to become too big. With RRSP assets that are over $500,000 per person, retirement withdrawals start to creep into the high margin tax brackets. And I 100% agree. So I've spread sheeted this out a few years ago to find that magic number. And I found that around 500, I think it was a $585,000, call it $600,000 is where it actually makes very little sense to keep contributing to your RRSP and try not to have more than that and use the other accounts, including a taxable account. Because yes, it feels nice to pay less tax at tax time by removing some of your taxable income with your RRSP, but don't fight the math.

Don't do what feels good, but doesn't make mathematical sense. And so I'm going to explain the math here in this table. Simon, anything to add here before I do that? Yeah, I mean, I would push back a little bit there. I mean, obviously, the amount can be there's so many variables to take into consideration to look at like an RRSP that is too big. to look at like an RSP that is too big. But I think, you know, any financial planner would agree with me on there that the planning aspect is extremely important because you can have some strategies where you can have a big balance, but the way you structure your withdrawal will actually be pretty efficient.

So let me give a quick example on that. Agreed. Is, for example, a lot of people don't realize, well, a lot of people do for CPP, but you can delay CPP until 70. You can actually, I think, delay it later, but there's no benefit to doing it. And same thing for old age security. That one is actually quite important because you can start getting clawbacks on old age security if you make above a certain income. And then when you reach the limit, you actually get you're no longer eligible for old

age security. So what you could do is instead of starting CPP at 60 early or 65 to normal age, same thing for old age security, you could decide if you're retired to draw on those rsp savings earlier on and then later on you draw less on them you have a smaller balance and then you can supplement with cpp that will have increased payments old age security because the more you delay the higher your payments are and you can supplement that with other income like a tfsa part-time job or whatever it is so there there's ways obviously this is just a simplified way of doing it. But yeah, there's ways to be able to structure it so you minimize the tax impact or it's most efficient.

But for sure, if you have like something, let's be honest, if you have like 5 million or something like that, then clearly there's not gonna be really any way to do it without being dinged at a higher tax level. Yeah, I totally agree that there are super important strategies and planning around withdrawals to make this a lot better. And of course, back to my disclaimer, it really depends on your personal situation and if you have other income too, right? Like if you a pension or you know you have business income that you you know plan to continue to have and this is

this discussion is completely different right out of the gate right well i think it also like it's a good reminder for people to plan in advance too because i think a lot of people end up you know they're 65 and what i just explained and then they they just realize they're a bit in a predicament but then they only have a short amount of time or maybe they already started cpp so you have to make sure you plan in advance so you're able to make it as efficient as possible that's right so if you if you look at RIF withdrawals, and so you got to roll that over. I'm blanking. Is it 71 or 72?

Yeah. So it's the year. So basically by the end of the year in which you turn 71. So if you turn 71 in May of this year, for example, you'll have to convert it by December. So the end of this current calendar year. Yeah, exactly. So it's not when you turn 71. It's the end of this current calendar year. Yeah, exactly. So it's not when you turn 71, it's the end of the year in which you turn 71.

Right. Okay. So say you're doing, you know, just the min withdrawals on a $750,000 portfolio. At the beginning, you know, when you're 72, you're looking at just like $40,000. That doesn't seem bad. But if we like, you know, you're 72 you're looking at just like forty thousand dollars that doesn't seem bad but if we like you know you project with modern science you know you're gonna die and i and i hope everyone listening to this podcast gets to live a nice long healthy life

if you project kind of like out into you know mid 80s you could have like pretty significant uh withdrawals forced withdrawals all the way up until when you're 89, it's 11% minimum withdrawals. And so you get a pretty sizable withdrawal, a pretty sizable income tax bracket. And this is not to mention to estate planning. An estate can face a costly tax bill if there's a large sum of money in there. It's not drawn down on efficiently. A $500,000 RRSP would create a $237,000 tax bill right to the government in income tax and benefit clawbacks. That's not going to feel good.

That's not going to feel good. So these are just things to think about of course i have oh i mean doesn't matter if you're dead though yeah i'm gone who cares dark humor sorry yeah i love some dark humor look there's no hard fast stop rule my my hot spicy takes on like there being a number too high is probably, you know, too low and people could, you know, debate the math on it for sure. I get it. I see both sides of it. The point of this segment is to think about it. It shouldn't just be de facto max out my RRSP no matter what, you know, in any situation. It's to think about it because the math can not be very advantageous if you build some gigantic pile of money in your RRSP. And I hope you all get huge huge gigantic piles of money with investing

that's why we listen to the show just think about it that's all that's all it is yeah well and i think i mean just to add to what you're saying i think the biggest variable people go and assume and that's you know every time we talk about this people end up like they're very passionate about rsps and that's great that means they're're listening to the show, right? But I think people often forget, like, you know, if you're in your 30s or 40s, you might be retiring in 15, 20, 25, 30 years, whatever it is. People just assume that the tax rates, for whatever reason, like, I know they say they don't, but I think mentally they assume that the tax rates will be similar to what they are today, which is no guarantee. And that's what's great about the TFSA is that tax rate you lock it in right now.

Obviously, you know, there are some situation if you're a higher income earner, you're probably better off putting some money into the RSP. But I think the certainty aspect, which it's hard to quantify, obviously, but that certainty aspect and clearly the flexibility of the TFSA is the other biggest advantage. I think it's worth a lot. And people, I still don't understand why people just assume that they're going to be at a lower tax rate when they retire. It's not guaranteed. I mean, with the level of debt that our governments are facing, I mean, I would have if I place probabilities, I would say the tax rates will be either the same or higher, not lower when I retire, for example. So I think that's important to remember because people just have that assumption that the tax rates today will be

similar to when they retire and there's really no guarantee of that no there isn't there is there is no guarantee of that and i think you're bringing up good points to lean on probably than being unfavorable long term right so i i like this right? Because there's so much nuance to it. And, you know, before you slide into my DMs and tell me about your personal situation and why you think it's the best. I don't care about your personal situation, man. This is very generalized hot takes because I know lots of young people who are, you know, millennials in their late twenties or mid thirties that have, that are investing aggressively have like, you know, a couple hundred grand in their RRSP and they're probably got like 40, 50 years of compounding

in that account still. Is that three, Where is that 300K going to go? It's going to be several, several million, right? 30, 40 years of compounding. I mean, you'd have to be a pretty bad investor for it to not become that. And so continuing to add to that pile with fresh contributions, it might be a lot more tax efficient, net net in the grand scheme of things if you map it all out and all the years down the road to use it a taxable account if your TFSA is fully used up. Yeah. And I think one last thing about our SPs, and I'm sure I know we have some financial planners and financial advisors that listen to the podcast.

But one of the things I remember that really stuck with me when I was younger was, I think, like around your age, I took like a retirement course when my old employer and I was probably I brought the average age probably by 15 years just because everyone taking it was literally a couple of years away from retirement. And most people that talked to me said, I wish I had taken the course when at your age, because now they're telling me some really useful stuff, but I, you know, I don't have really the time to apply it. You know, it's too late because these are things that, you know, take years to really, you know, take effect and you're missing sometimes some, you've missed some good opportunities. And

one thing that stuck to me, especially for the younger listeners that may have a pretty good balance of RSPs is keep an eye out for years where your income could be significantly lower. You don't have to have retired. Maybe you're in your 40s or maybe in your 30s. You have a child and you take some time off that's unpaid. Your income for the year is much lower. That's not a bad year to withdraw some RSPs because that's the whole point of it, right? Yes. It's to having a lower tax bracket. So just be on the lookout.

Remember when I was doing that when I quit my job? Yeah. Yeah, exactly. So that's a great opportunity. Or, you know, I know some people end up, I don't know, in their 40s. They take a sabbatical or a year off. Maybe they receive a little bit of income. But those are really good opportunity, not necessarily to withdraw the whole thing, but withdraw a little portion where you'll be taxed at a much more

efficient tax rate. And a lot of people don't realize that they just think that RSPs are specifically for retirement. And I don't blame him because it's a retirement registered retirement savings plan. So I don't blame him. Yeah. But the RSP, you can withdraw at any point in time. You don't have to wait for retirement. The only thing is that it's anytime you withdraw, it's taxed at your marginal tax rate. So you just have to keep that in mind. But that is something that really stuck with me. He had specifically, the guy who was facilitating the course had said, yeah, people have, you know, go on maternity leave, have periods of unpaid, the income is significantly lower. So I'm not saying to necessarily do that. Obviously,

crunch the numbers, you know, I've always said it before. I think there's some really good certified financial planners, especially if you pay them for just by hour. I'm a big fan of that. You kind of go see someone that specializes in something that you don't really know well you know you pay them for their time they're not a percentage of your asset big fan of that and then you can get a second opinion and that could save you you know much more than you pay for the service absolutely i think that that's a pretty well i have i have some opinions on you know active management investment fees but i think that that those planning fees are very worth it. Just like a good accountant can save you a lot of money, just like a good lawyer can save you a lot of money.

Exactly. I'm learning that as a business owner very quickly. I think I know a bit about taxes, but I'm not an expert on there, and I'm smart enough to know. We know a lot of stuff about investing, but there's a lot of stuff we don't know. And I think being able to identify what you don't know, and what you can just outsource, I think that's, that's really good to do and be able to, you know, to take a step back as well. Thanks for listening to the podcast. We really appreciate you. Thanks for tuning in. A lot of the data here, especially like when we're talking about Adyen, the specific companies, you can take it either from FinChat or from Stratosphere. data now is from a combination of our own KPI and segment data, but also from institutional

data quality providers that we pay a lot, a lot of money for now. So we've really invested in the data quality now. And if you've ever had a problem with data on it before, I can guarantee those don't exist anymore. So go ahead and check that out on Stratosphere. It's free to use to get some of the data. And there's paid plans if you want. You can get 15% off with code TCI. That is code TCI. Yeah, I wanted to add a couple of things. First of one, just a shout out to Debra on Join TCI.

She had a question about stock lending. We'll be doing it. I had a segment ready, but we got too passionate about the RSP discussion, so it went on too long. So don't worry, Debra. I'll be taking a break for a couple episodes, but when I'm back, I'll definitely did a lot of research on it. So I'll go over that. And then for everyone else, if you can take the time, if you haven't done so, give us a review on Apple Podcasts. If you listen to us on there or on spotify really helps people to you know find us when they're looking for an investing podcast we really

appreciate that takes a second on spotify just click the five star apple podcast you know just give us a nice little review you can say that you love my accent or uh you know you want to go for a jet ski ride or whatever on with brayden i'll take you anytime anytime absolutely so next week the both uh the thursday and the monday episodes will be or yes this week when you're hearing this because this yeah when you're hearing this yeah week of the 28th i guess we have two guests coming on one's confirmed another one's tbd the first one i'm not going to give it away just yet but you're going to want to listen because we have talked about their book on the show a handful of times uh many many times on the show we've talked about the book so we're getting the actual author of that book i know many of you guys have read this book and so you'll you'll

love that you'll love the discussion i thought you were getting ben mckenzie on for a second oh yeah yeah i'm here to talk about uh his crypto uh his crypto hate book yeah so it's not ben mckenzie for for those of you who are oc fans or gotham yeah oh man that's too funny uh no not him not him we'll see in a few days take care bye-bye the canadian investor podcast should not be taken as investment or financial advice braden and simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.