Episode 208 - Dan Bortolotti: The Canadian Couch Potato

This episode features a deep dive into practical investing strategies with Dan Bortolotti, exploring the "Canadian Couch Potato" model of investing.

1. Dan Bortolotti's shift from journalism to financial advising brought practical insights into low-cost, efficient investing.
2. The growth and impact of index funds in Canada have democratized investing, though Canadians have been slower to adopt compared to Americans.
3. Simplicity in investing, such as using all-in-one ETFs, helps investors maintain their portfolios and avoid common pitfalls.
4. Financial planning is critical and should be integrated with investment management for best results.
5. Even seasoned investors can benefit from professional financial advice to navigate complex investment scenarios and optimize tax situations.

1: Introduction

Hosts introduce Dan Bortolotti, discussing his background and the focus of the episode. Key topics include the evolution of the Canadian Couch Potato strategy and its impact on personal finance in Canada. Benjamin Felix: "We're exploring the journey from a popular finance blog to influential financial advice with Dan Bortolotti."

2: Evolution of Index Investing in Canada

Dan discusses the early days of index investing in Canada, its growth, and how it has shaped investor behavior and the financial services industry. Dan Bortolotti: "Index investing in Canada has changed dramatically, making it easier for individuals to manage their investments."

3: Simplifying Investment Strategies

The conversation shifts to the benefits of simplified investing strategies and how they can prevent common mistakes made by DIY investors. Dan Bortolotti: "Keeping investment strategies simple can lead to better maintenance and fewer errors by investors."

4: The Role of Financial Advisors

Discussion on how financial advisors add value beyond investment management, emphasizing financial planning and emotional support during market volatility. Dan Bortolotti: "Financial advisors play a crucial role, not just in managing assets but in providing strategic advice and emotional reassurance."

1. Start Simple: Begin with straightforward investments like all-in-one ETFs to avoid complexity.
2. Educate Yourself: Continuously learn about different investment strategies and market behaviors.
3. Seek Professional Advice: Consult with financial advisors to tailor investments to your financial goals and personal circumstances.
4. Regular Review: Periodically review your investment portfolio to ensure it aligns with your long-term goals.
5. Focus on Long-term Goals: Avoid the noise of market fluctuations and focus on your long-term investment objectives.

When it comes to DIY investing, there’s always a temptation to make things more complicated than they need to be. But, in reality, embracing simplicity is one of the best ways to ensure good investment outcomes. Today’s episode features an exceptional conversation with our long-time friend and colleague, Dan Bortolotti, who has worked alongside us as an Portfolio Manager at PWL Capital for over ten years. Some of our Canadian listeners might recognize Dan as the man behind the Canadian Couch Potato blog (one of the most popular resources for Canadian investors) and the voice behind the Canadian Couch Potato podcast. Dan is a consummate communicator, both on paper and in person; beyond his extensive blogging, he has also written a number of books, both fiction and non-fiction, the most recent of which includes Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs. Dan has played a pivotal role in making PWL Capital what it is today, and in this episode, we learn about his surprising journey to becoming an advisor, before hearing his wide-ranging insights on DIY investing. Dan breaks down key components for investors, from how to approach your asset allocation and picking index funds to navigating fees, taxes, and performance. We also discuss how the investing landscape has changed since Dan started writing and essential lessons he has learned over the years. To hear all about investing from the Canadian Couch Potato himself, be sure to tune in for this expansive conversation!

People

Dan Bortolotti, Benjamin Felix, Cameron Passmore

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Dan Bortolotti

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Benjamin Felix
This is the rational Reminder podcast, a weekly reality check on sensible investing and financial decision making from two Canadians. We're hosted by me, Benjamin Felix, and Cameron Passmore, portfolio managers at PWL Capital.

Cameron Passmore
Welcome to episode 308. And this week is a very special episode for us. I'm sure you agree, Ben. We had a chance to have a great discussion with our longtime colleague, Dan Bortolotti. Dan is a name that I'm sure many canadian listeners are aware of, as he's the person behind the canadian couch potato blog, which then became one of Canada's most popular resources for investors in Canada.

He also hosted for a number of years the Canadian Couch potato podcast, which was wildly successful and still very well ranked, even though it hasn't had an episode out for a number of years. But we had just a terrific conversation. He's such a great communicator. Him and his colleagues in our Toronto office have been such an important part of our company's story, and he's just such a great thought leader in this space. And his background of how he ended up here, which is a story he tells in this conversation, it's inspiring the impact he wants to have.

Benjamin Felix
Yep. Yeah, it really is. You said it, Cameron. It is a special episode for us because, like you also said, dan really played a huge role in what PWL is today. The whole idea of creating content and giving really high quality information away for free really started with Justin and Dan.

We talked about that near the end of the episode, and I think to some extent, we've been able to continue with what they started, but it's really now in the DNA of who we are and what we're about and what people know us for. So, yeah, very cool to talk to Dan about all kinds of things, but we also did talk about that at the end of the episode. I never realized that you and Dan joined right around the same time. Yeah, I joined a little bit before Dan. So I think at the time when I joined, Justin and Dan were doing a lot of writing together.

Not long after that, Dan joined the firm. So Dan's a portfolio manager with our office in Toronto. He's also an author of many books, including most recently, reboot your portfolio, nine steps to successful investing with ETF's. Plus he's done a bunch of fiction and nonfiction books, which is pretty impressive. Yeah, he wrote a very highly regarded book on the natural history of the Blue Whale called Wild Blue.

We talk about this during the episode. He's an incredible communicator, both written and spoken, but his writing way before he was even interested in personal finance, which is something we talked about during the episode. He was a very highly regarded writer on topics such as the Blue Whale. It's just interesting. His unbelievable writing abilities translate to topics other than personal finance.

Dan Bortolotti
Yeah. His path to becoming an advisor, it's this random walk. It wasn't a path he had planned out ahead of time. Just had this random events happen and something piqued his interest. And he tells a story of how he met our colleagues in Toronto.

Cameron Passmore
And the rest, as they say, is history. It's a really interesting story and is such a great communicator of the value proposition of financial advice. What's it like to be a diy investor? How to make that choice? Super interesting.

Benjamin Felix
Yeah. And to be clear, in the episode, we do talk about the background and Dan's story, but we also talk about investing in fees and taxes and picking index funds and all that fun stuff. Asset allocation, all the good stuff. Don't be concerned that you're going to get just a story. Yep, exactly.

Cameron Passmore
Okay. With that, let's go to our conversation with our colleague and good friend, Dan Bordelotti.

Benjamin Felix
Dan Bordelotti, aka the canadian couch potato. Welcome to the rational Reminder podcast. Thanks for having me, guys. Super excited to be talking to you, Dan. Yeah, big time.

Cameron Passmore
This is great. Thanks for coming, Dan. Yeah, my pleasure. So, to kick this off, and keeping in mind that some of our audience is not canadian, so they may not know who you are, can you talk about the origin story of the canadian coach potato blog? Yeah, sure.

Dan Bortolotti
So I think we have to go back to about 2008. So just the months before the great financial crisis. At the time, I was working as a full time magazine writer editor. I didn't have any real connection to personal finance. Even as a writer, it was certainly not my specialty.

But I was doing a fair bit of work for Moneysense magazine, which at the time, I think was Canada's number one personal finance magazine. It's now just a website, but I was assigned to do a story or participate in a story that the magazine was doing. It was a lot of fun, actually. It was called the seven day financial makeover, and we got three couples and one single person, all of whom were self professed basket cases when it came to personal finances. Or just that maybe is unfair.

A lot of them had experienced some difficult things in their lives, and they were certainly having financial difficulties. So what we did was we put all of them up in a hotel in downtown Toronto for a week. And over the course of the next few days, they sat in front of a different financial expert every day. So we had somebody who worked with getting people out of debt and savings and investing, et cetera. And I was just there as a reporter to follow one of the couples.

And so I was there every day for five days listening to all of these workshops. And I like to joke, I think I got more out of that workshop than any of the participants because one of the things that turned me on during that session was the guy who came in to talk about investing. I should thank him for this. Its Norbert Schlenker, whose name lives on in Norberts Gambit, the well known technique that DIY investors use for converting currency. But in any case, he talked a lot about the importance of prudent investing.

And specifically, he went on about index investing as a strategy to follow. I had some familiarity with the strategy at that point. In fact, Moneysense magazine had really brought the couch potato strategy to Canada before I was on the scene. I kind of co opted the name later. But anyway, I learned a lot about investing at that session.

It really sort of turned me onto it. I started reading everything I could get my hands on about it, and I immediately, I became a DIY investor myself, put all my portfolio in ETF's. Three months later, we had the worst financial crisis in a century, cut the portfolio in half very quickly. But this was actually, I think part of the, what really happened here was even though the portfolio got demolished in 2008, like everything else, I didnt abandon it because I had just done all of this research saying that this is going to happen in the markets, you probably wouldnt have done any better had you tried to use active management or tried to time. So I stuck with the strategy.

And then by 2010, early 2010, I decided to write about it because, as I think you guys know, I mean, the best way to learn about something is to write about it because it forces you to crystallize all of your thoughts in a coherent way. And so I launched the blog in 2010, and as I said, I just kind of took that name, canadian couch potato, referring to the strategy. And yeah, that was the origin story. It took off pretty quickly from there. Such a great story.

Cameron Passmore
I didn't know all those pieces. That's great if you had to guess, Dan, how many people do you think you've learned about index investing through your writing? It's got to be in the tens of thousands. And I'm just going by things like book sales and web subscribers and things like that over the years, certainly. I think the influence early on was great because back in 2010, I mean, the financial blog space was really very different from what it is today for sure.

Dan Bortolotti
And there wasnt really anybody else writing specifically or solely about the indexing strategy at that time. It did build up a pretty big following in those early years, for sure. Can you talk about how the availability of index funds in Canada has changed since you started writing about them? Trey? Its really changed dramatically.

I mean, I would say for, lets start just by talking about ETF's. I mean, at the time in 2010, I mean, even Vanguard hadnt launched in Canada yet. And you had a very limited number of ETF's that were available to investors. And if you wanted to build a portfolio of ETF's, you had no choice but to assemble that portfolio from multiple moving parts. And of course, that hasnt been the case for a number of years.

Those model portfolios that quickly caught on with investors became really important because somebody had to point you to the specific products in order to assemble a well diversified portfolio and give you some sense of what allocation you should put to each one. You dont have to do that anymore. I think the other thing thats evolved a lot is index mutual funds, because, again, at the time, there was a lot of them around. All the banks had them. I think theyve mostly moved away from them as well.

Theyve certainly changed their structure over the years. Theyve pretty much fallen out of the picture. Nobody really uses index mutual funds anymore, with the possible exception of the TD E series version. But even they are not nearly as available as they used to be. So that has really disappeared from the discussion.

And everybodys focused on ETF's now when it comes to product selection, if youre an index investor, Preston, so youve been. A big part of this index fund revolution for a number of years, as youve been describing, but we still have a long way to go, certainly compared to the Americans. Do you have any sense of what and why Canadians might be slower to adopt an indexing strategy? Yeah, I thought a lot about that. I don't know that I have any data to back any of this up, but if I can just share some anecdotal information about it, my sense is a couple of things.

One is just simply the technology and availability in the sense that I think american investors have had the very good fortune to have been able to benefit from Vanguard for many years in ways that Canadians cant benefit from. In the same way, if youre a us investor, you can open an account directly with Vanguard and invest through them without an intermediary. Of course, we have Vanguard products here, but youve still got to open a brokerage account. Youve got to buy the ETF's yourself. Just takes a little bit more hands on involvement.

And I think experienced DIY investors will look at that and say, oh, come on, how hard is it to just open a brokerage and buy an ETF? And the answer is, it's not that hard. But that is still a barrier for a lot of people. Whereas if you make that barrier a lot lower by allowing them to open an account directly with the fund provider, I think that helps. So part of it is just that, but I think another part of it is a bit more cultural.

And I mean, as you guys know, I mean, Canadians have a bizarre loyalty to banks, which I just dont think you see in the US or many other countries. And so a lot of people just feel very comfortable investing with their bank. And as we all know, I mean, I dont want to rip on banks specifically, but theyre not particularly well known for their low cost investment services and their comprehensive client based planning. So I think its very hard to get people away from that model. Certainly, you dont see any support for index investing in the passive strategies within the banking sphere.

So I think thats had a lot to do with it as well. Makes a lot of sense. You mentioned earlier how the product landscape has changed. Can you talk about how the couch potato model portfolios on your site have changed over time? Yeah, for sure.

As I was saying at the beginning when 2010 or 2012, when you were trying to build a portfolio of ETF's, you really didnt have much choice other than to buy a specific product for each asset class. So you were looking at a minimum of three, but more likely four, five, even six ETF's and components in the portfolio. And again, how hard is it to buy a few funds and rebalance them from time to time? In theory, not that difficult, but in practice, it trips a lot of people up. And so now, of course, since the launch of the so called asset allocation ETF's, these kind of all in one portfolios that are made up of multiple ETF's are so much easier and have made really the model portfolio exercise that I used to go through every year to kind of update which allocation made sense and which individual funds were the lowest cost and the most broadly diversified.

That is not even necessary anymore for most investors. And certainly if youre just getting started and if your portfolios modestly sized, its pretty hard to go wrong with these asset allocation ETF's and you just remove all of these decisions about trying to tweak percentages of this asset class versus that asset class. You just get everything in one fund and its so low maintenance. Thats another problem I found with a lot of do it yourself investors. What tripped them up?

They would start off fine, but the rebalancing the portfolio and maintaining it over time, especially if you have multiple accounts, was really what defeated them. This all in one solution has really taken that obstacle away as well. You could use them in all of your accounts if you wanted to. Is it optimal? No.

Is it good enough for most people? Yes. And that I think has really removed a lot of the barriers for DIY portfolio construction. Trey, can you talk about how important, and I know this is very near and dear to you, how important simplicity is to a good investment outcome? Yeah, thats something that ive only come to appreciate over time.

If you look back at some of the stuff that I wrote 15 years ago, you would not necessarily have seen a lot of simplicity there. I was really an advocate of trying to optimize and trying to think through all of the details in such a way that you could keep fees and taxes and everything else to an absolute minimum. And all of that is still important. But what I learned over time is the simpler and more straightforward a portfolio is, the more likely you are to be able to maintain it. And the more opportunities you give yourself to tinker, the worse of an outcome youre usually going to get.

Lets start with the product selection right off the top. Again, we were saying if you want to buy a diversified portfolio now, you can buy one ETF and most people will probably do just fine with that. Previous to that, if you were buying individual asset classes and you were saying, well, I need ETF for bonds, I need one for canadian stocks, us stocks, international stocks, emerging markets, why dont I add one for commodities? Why dont I add one for small cap? Why dont I add one for corporate bonds?

And once you go down that road, you end up with the Frankenstein portfolio and you havent really thought about how all of these pieces should fit together. So if you sub out the portfolio construction to the people who create the asset allocation ETF's and they're very thoughtfully put together, by the way, that's a deceptive simplicity. If you stop cluttering your mind with those decisions and you focus on what's really important, which is a goal based plan, keeping your costs low, keeping your taxes manageable, saving regularly and sticking to the plan with discipline, you can focus all your energy on those things, which are so much more important than those other details. And so I think if you give somebody a simple plan, they're much more likely to follow it, and then theyre much more likely to enjoy some success. Trey, related to that or to expand on that.

Benjamin Felix
Based on your experience interacting with many DIY investors, what do you think is the biggest obstacle to successful investing? For most people, I would say the biggest obstacle overall is not being content with what seems like a simple plan. I have seen this so many times. You put something in front of someone and say, look, this is a simple, easy to execute plan. It's very low cost, it's extremely well diversified, and you should not have any difficulty in maintaining it.

Dan Bortolotti
You think that you've solved the problem. But humans are humans. And so even though we say we want simplicity and we just want a path that we can follow, when we're presented with that option, we so often want to complicate things. So we second guess ourselves. We think if its simple, it must be simplistic.

I mean, thats always been a problem with index investing, right? If it was this easy, why wouldnt everyone do it? Well, I dont know why everybody doesnt do it. Its basically the question you just asked. Its just behaviorally, we are not really built that way.

So the problem is no longer the industry. The problem is not. Fees are too high, because all of those problems are easy to get around. The solution is there. The problem now is getting people to understand that it is, in fact a solution and it is, in fact, something that they can follow.

It doesnt need to be complicated. And its really that kind of emotional and behavioral barrier that has become the only thing standing in the way of investor success now. But its also awareness, too, right? Our industry makes a lot of margin off of active high fee products. So it's more than just the availability.

Yeah, it's true for sure. I mean, we will often talk to prospective clients. Most people, as you can imagine, who come to us have already been reading what we've been putting out for years, and they already get it. But sometimes you get a referral, or sometimes you get somebody who comes to you without really a solid understanding of the investment philosophy. And it's a hard sell sometimes.

What do you mean you don't pick stocks? What do you mean? You don't ask yourself, is now a good time to invest? Or should I sit on the sidelines and wait? Like that's the playbook that they have been reading from for years.

And so it often takes a long time to get people to understand that a lot of the things that they have been doing for years and a lot of things that people have been telling them are important, are not, in fact, as important as they think. But youre right. I mean, how can you come away from the financial media with any other message, right, other than investing is about what to buy now. And smart investors reposition their portfolio every six weeks based on economic forecasts. Thats the message they get bombarded with.

So its hard to blame anybody for coming away with any other impression. How do you suggest people approach the stock bond asset allocation decision? Thats really one of the most important goals at the beginning of any investment plan is figuring out that proper asset allocation for you. Ive always really liked Larry Swedrows way of modeling this, which is, he says, you need to consider your ability, your willingness, and your need to take risk. Your ability is probably the easiest one.

Its mostly about your time horizon. If youre saving for a down payment in two years, you dont have the same ability to take risk in the equity markets as someone whos going to retire in 30 years. And the need to take risk is also just something that you would compute. You have a savings goal, a target of a number you want to hit. You know how much youre putting in every month or every year.

And then its just simply the math of calculating how much return do you need, a 4% return or you need a 9% return to get where youre going. So those are simple enough, I think. But for me, its really comes down to the willingness to take risk as the most important factor. Because if you only look at the other two, you could argue that any young investor with a time horizon of 20 years or more should just be 100% stocks. And I have seen that advice from a lot of people.

And youre told, why are you wasting your time with conservative investments like bonds or gics? Youve got the time horizon to be all in stocks. And, yeah, again, thats true. If youre a robot and youre going to have a 30 year time horizon where youre never going to look at your portfolio. Thats probably true.

Most of us are not. And so weve all seen it working with clients. I mean, lots of people have the ability and the need to take risk, and youve aligned that with their asset allocation. But if youre going to be sick to your stomach every time the market falls 10%, you cannot be an aggressive investor. And a lot of people simply dont know where they are on that spectrum until they have lived it.

Thats one of the things that we certainly saw in the years. When I started the blog around 2009 onwards, markets were very good for a long time, and you had all kinds of people overestimate, estimating their risk tolerance. And I dont know how those people ended up in 2022, for example. So I think that really it comes down to what you can be comfortable with. If you look at your portfolio every day and you probably shouldnt, but if you do and it doesnt give you a heart attack every time youve seen it fall, 510, 15, or even 20 or 30%, then sure be aggressive.

But most of us are going to be somewhere on that balanced continuum, somewhere between 30 and 80% stocks, I think, is the vast majority of people were. In a weird time now for people not having had the opportunity to test how they'll respond to a proper bear market because we had Covid, but it bounced back so fast, it's like, oh, that wasn't so bad. Yeah, it can get worse. Yeah, it's so true. And it's funny because I really feel like it's not so much the depth of a bear market, it's the length of a bear market that is the bigger test.

I wasnt in the market in any meaningful way during the.com crash, but I can imagine, and as an advisor, can you imagine having those meetings with clients? We had three consecutive years of negative equity returns. Thats tough to take. I mean, we can all get, I mean, hey, we have a bear market in its three, six months of misery, but try doing that three years in a row. How many people were scared out of the market there for years, maybe forever?

And then they all missed the huge bull market that followed that before zero eight took it away again. So I think people dont always appreciate how painful those downturns can be. One of the things we always do when we speak to clients about assessing their risk is we dont talk about percentages, we talk about dollars. It has such a bigger impact. So if you have a client, I mean even with a million dollars, and you say, how would you feel if a 20% decline?

And people would say, oh, well, thats a garden variety bear market, im fine with that. Theyd say, how would you feel if you lost $200,000 next year? Well, that sounds a lot worse. Its the same question. If you express it in terms that people can truly appreciate, in terms of dollars lost, I think they have a bit more of an appreciation for the effect it might have on them?

Benjamin Felix
Thats a great point. Can you talk about how, and this is something that your blog went into so much detail back in the day, like you talked about when someones decided on the asset allocation, what actually goes into selecting the ETF or index fund that they should use to express that allocation? In the old days, that was pretty easy, right? If you wanted to buy a canadian equity ETF, there was a couple available and they were all pretty similar. Nowadays you have so many choices within individual asset classes.

Dan Bortolotti
So I think if youre going to be building a portfolio with individual ETF's now as a do it yourselfer, your default choice or your starting point has to be the ETF that has the broadest coverage of that asset class at the lowest cost and with the fewest rules. I mean, all index funds have some rules that they have to constrain. They cant just hold everything. I mean, if you want to use a specific example, lets say something like, if youre want to invest in us stocks, youve got a lot of choices. But I think for most people the best choice is going to be a total market index.

So it holds something in the order of 3500 stocks these days. It covers over 99% of the investable public markets in the US. And you can get these funds for anywhere between three and 15 basis points fees. So now you bought the entire us market at remarkably low cost. Now you can go a different route.

You can buy the Dow Jones index and get 30 stocks, or you can buy the Nasdaq 100 and get 100, mostly tech stocks. And a lot of people are going to look at performance and say, well, this one outperformed that one over the last five years, so why wouldn't I get the best performer? But if your goal, again as an index investor is to buy the broadest market you can, then it doesnt make sense to look for ETF's, that filter for a lot of specific things and end up giving you only a narrow cross section or only a narrow segment of the total market. So then you can apply that to the other asset classes as well. If youre buying a canadian stock ETF, try to get one that covers the most broadest coverage of the canadian market.

International stocks try to get one that covers the broadest market. And that includes large, mid and small companies. If you can get all of that in a single ETF with bonds, same sort of thing, a mix of maturities, a mix of government and corporates, that to me is really about trying to get the broadest possible coverage at the lowest possible cost and not imposing your own idiosyncratic rules on what you want to hold and what you exactly. Im guessing a number of listeners remember the old uber tuber couch potato portfolio, which was based largely on factor investing. Have your views on it changed since then?

Yeah, there was a time there when I was creating model portfolios that even I fell prey to this idea that, well, why just present a simple portfolio of three or four funds? Theres all kinds of other specific strategies you might want to target. So I had a high yield portfolio, and the one that I called the Uber tuber, as in the ultimate index portfolio, broke it down even further. So it had access to small cap and value stocks and I think it had real estate and that in there. So again, it was kind of an attempt to get even more diversification.

And it was also, based on the research being done, has shown that tilting towards factors like value and small could increase your returns over time. And so I put that one together. I honestly have no idea how many people actually followed it because it was pretty complicated. I believe it was at least ten ETF's. And I would say it was kind of a thought experiment.

But as I was saying earlier, over the years, ive just come to understand that trying to split hairs like that and trying to create more complexity in pursuit of higher returns usually ends up in disappointment. And so, I mean, thats not something I would ever recommend anymore. And if you were interested in a portfolio that tilted the factors, theres way more efficient ways of doing it than a portfolio like that. Trey, Ive talked to a few people that had implemented the ubertuber. Oh, yeah.

Benjamin Felix
At least two, maybe. Okay. Okay. Some of those funds don't even exist anymore. So, yeah, I wonder how it evolved over time.

Yeah, interesting question. It has been cool, though, to see the evolution on the blog of, you alluded to this earlier, trying to optimize a lot of different things and writing about it incredibly, then it's transitioned over time to simplicity, which is reflected in a blog now. Yeah, I think that's just a matter of information and knowledge evolving into wisdom. I mean, I think theyre kind of different things. And I also think that theres very different incentives and motivations when you are a writer versus when youre an advisor.

Dan Bortolotti
So when I was doing the blog full time, I was doing two blog posts a week, and they were pretty detailed for the most part. It was a lot of work. And when youre writing two blog posts a week, you cant write. Keep it simple, hold, stay the course. I mean, that gets boring very quickly.

And that explains a lot of the financial media. You cant just write that message over and over. Its boring, and no one wants to read it, even if its wise and prudent and all the rest. And then when youre an advisor. So youve got a couple of things going on.

One, you no longer really care about coming up with new information twice a week. You want to focus on what you're doing every day. But the other thing is, you realize all of these, like your audience as a writer, is often unclear to you. Certainly you get comments and that from people. But when you're actually working with real families, you start to understand this really isn't that important to them, is it?

Like if I tried to have some argument with the family that I work with about some academic study that showed some certain exposure to this or that factor, what might lead to 20 basis points of higher returns. It doesnt matter to them. It doesnt make any difference in their life. So you start to realize, okay, im going to focus on the things that actually make a real difference to people. And a lot of that starts to drift away from investing and into planning.

I was talking with somebody about this the other day that we will sometimes have review meetings where were having this discussion with a client for 90 minutes. And then at the end of it, its like, I guess we should talk about the portfolio. And we go over the performance and really look at the holdings. But theyre not preoccupied with it. And thats not to say that we dont care very deeply about returns.

Of course we do. But to drill into the nitty gritty of it ends up not really being what most people, I think, get value from the relationship. Yeah, totally. Thats been our experience, too. Related to that, can you talk about how important it is to be clear on financial goals before someone starts investing?

Robert, thats something we hear all the time, and it seems very obvious. But if you talk to a lot of people, especially early on in the process, if youre working with a new client, you start to realize that many peoples investing experience is pretty divorced from their goals. You talk about, what are your financial goals? And theyre things like, well, I want to get a 7% return. Well, its not really a goal.

I mean, its kind of a goal, but its not a life goal. Right. And so you have to push, well, why do you want to get a return like that? And so I think its really important to establish pretty early on in the relationship that your life goals are whats more important and your investments are just a tool or a strategy for getting to those goals. So when they ask questions about why arent we doing this or that to turn it around and say, well, how does that relate to your goal?

How does that relate to your goal? What is your goal? Is it early retirement? Is it working later in life but enjoying more spending? Its really important to be able to define what the goal is, not in terms of a tactic.

Right. My goal is to invest 40% in us equities. Thats not a goal. Try to attach it to something meaningful in your life and then figure out your investment strategy is just a way of getting there. It takes people a little while, I think, to get into that philosophy.

But ive certainly found with clients, after a couple of years, they start to get that more and more. The discussions and the meetings tend to focus on those goals and they just take for granted that the investment strategy is eventually going to get them there. Dan, id love to hear you talk about how important saving rate is relative to things like fees and performance, because I know you're very passionate about that and you alluded to it earlier. This is something that really came to the fore with me because a lot of readers of the blog and a lot of people that followed my work early on were people in the early years of their investment journey, those people in their twenties just starting work. The enthusiastic DIY investors, for example, tend to skew on the younger side and they get very focused on fees especially.

Its funny because im always really reluctant to downplay the importance of fees because that was the key message that I built my reputation on for years. Of course fees are important. Of course they erode your returns, but they have to be kept in perspective depending on the individual person. So I would be on the phone with investors or they would email me questions and they would have 15 or $20,000 to invest because theyre just getting started in their journey and theyre trying to decide why would you use this etf at ten basis points when you can get this one at eight? And im thinking, you know what two basis points is on your portfolio, right?

Two basis points is $2 a year on $10,000. Okay? So it is absolutely trivial at that stage of your career, your investment journey. So focus on savings first. Focus on savings and appropriate asset mix for you goals like we talked about.

What are you saving for? Are you saving for retirement or a down payment? Very different goals. All of those things are 100 times more important than a few basis points in fees, especially Robert, the commercial I always like, theres an online brokerage, which I will not name, where the guy is on his phone and his brother comes in and he says something like, hows your diy investing going? And hes like, man, these low fees are really making a big difference.

And its like over what time period and what amount of money are you talking about? If you just switched brokerages last month, trust me, the low fees arent making any difference. This is a discussion that has to be much more thoughtful. We work with clients. Our average account size in my book is somewhere around 2.5 million.

Now, fees make a huge difference because you may not even be saving anymore. If youre late in your career and your investment returns are driving everything, of course the fees are going to erode those. But lets try to understand, first of all, what is the number we were talking earlier about? Percentage drops in the market being less meaningful than dollars. Do the same thing with fees.

And if you find out that switching your portfolio is going to save you $9.12 next year in fees, its not an important decision. If its going to save you a few thousand dollars, of course it is. So that changes really over time. And just as a tangent to that, I would say one of the things I have, we sort of created a monster when we brought up fee awareness with a lot of investors. Again, it's incredibly important.

And put it in context, when I was writing about this stuff 15 years ago, it was still very common for people to pay two and a half percent in mutual funds. I think that has become less and less common over time. And the difference between paying two and a half percent and 20 basis points is life changing. But what we have come to now is where people can understand why anybody would pay 20 basis points when they can pay 18. And then it starts to become a big distraction, I think.

Benjamin Felix
Trey, I think I have a question thats sort of an extension of the discussion on fees. What do you see or how do you articulate the value of financial advice? If we consider investing to be effectively solved by low cost ETF's mutual funds. Weve all kind of grown up in an environment where an advisors value has historically been tied to market beating returns. I mean, you would pay somebody because they could do better than a DIY investor could.

Dan Bortolotti
Just in terms of, when I say that, I say that they could do better than the indexes. That is no longer a compelling value proposition for any advisor because most of them are not doing that. And we get that question frequently. Its an absolutely fair question. Why would I pay you a fee when youve put all this information out there that I could just build my portfolio myself.

And I think the answer to that is, if you can do that, you should do that. I mean, weve provided you with all of these resources, and I desperately want people to succeed as DIY investors. But ive also come to understand that a lot of people dont have the time, the skill, or the inclination to do that. For those people, we can provide a lot of value. It isnt in market beating returns.

And ive said to clients many times, your expectation with us, if you invest with us, is you will get market returns minus what you pay us in fees. Youre never going to beat the market, and we are never going to tell you that. Thats how we add value. So, of course, you add value with the financial plan. You add value with the implementation of the financial plan, which is hugely important and a piece that gets missed a lot.

You impose discipline. I mean, you're a buffer between a client and their emotions. They can call you and say, I'm terrified we should get out of the market now, but they have to get through the guards before they do that. And most of the time, you can talk them in from the ledge. And the other thing I think a lot of enthusiastic DIY investors dont appreciate is they are an unusual bunch.

I used to joke when I would do like a talk at an investing conference or something on a Saturday afternoon. I said, take a look around. How many people do you think go to investing conferences on a sunny Saturday afternoon? You guys are weird. Youre an anomaly in society.

So dont think, well, anybody can do this because most people do not have the inclination to do it, and they take great comfort. I can't tell you how many times I've had clients, sort of older clients, who just say, I'm so happy that I have somebody that I trust looking after this stuff because I don't know what I would do if I had to worry about it myself. There's the value add. It's just a different model, though. Trey, let's keep going down that DIY discussion.

Cameron Passmore
So do you think the importance of financial planning, as opposed to just investing is generally appreciated by the DIY community? Trey, I would say no. Mostly it's not. I feel that the DIY investing with DIY financial planning is not a great model for most people. I mean, I think we were saying, like, investing has kind of been solved and the investing solutions are quite simple.

Dan Bortolotti
I'm not sure I can say the same thing about financial planning. There's really not very much about it. That's simple. I mean, once you get beyond, spend less than you earn and save the difference, trying to make wise decisions about rsps versus TFSA's versus mortgage payoff and all of these other goals are not straightforward. And there's no DIY financial planning software that solves that problem.

It's more difficult. I think the DIY investing plus fee only financial planner is a model that in theory can work extremely well. We all know in the industry how many great fee only planners there are out there. They dont do investments. They just do planning.

And theyre really good at what they do. Its not inexpensive. And a lot of people are reluctant to write a check to a financial planner in a way that theyre not as reluctant to have a fee taken from their portfolio, which they dont see. And the second part of it, even if they do willingly pay a reasonable fee for a financial plan, they still have to implement it. And one of the things ive talked to fee only planners about is one of their great frustrations.

I think its like, man, I just did this really good plan for a couple, and im pretty confident theyre not going to follow it. Its very frustrating because its not easy to do that. And ive really become a bigger fan of the model that we use here, which is financial planning and investment management by the same team. Because when we do a financial plan, the next step is we implement the financial plan, and theres a lot of value in closing that gap. Preston Yep, I agree with you big time.

Benjamin Felix
Its not super common, but weve definitely had a few cases where weve sent someone off to a family financial planner who, like you said, are incredible and do great work. And then three years later, the person has come back and said, I did get a great financial plan, but I haven't done anything. Can you help me? Now, for some people, there's a gap there. Not to say that nobody can implement.

Dan Bortolotti
No, for sure. And I mean, it's the same as everything else. There are a lot of people who are very successful DIY investors. There are a lot of people who are extremely disciplined at following a financial plan. It's probably in the minority.

Benjamin Felix
Yeah, it's the people listening to this podcast, maybe, and the people who go to your talk on Saturday. Yeah, let's just say that that's a subset of humanity. Yeah, definitely. I want to come back to something you touched on earlier. When you transitioned from being this blogger writing to DIY investors to being an advisor working with families.

Was there anything that surprised you about what clients actually found valuable? Oh, there's so many things that surprised me. I think it's true. When I came into this business and when I started working as an advisor, I assumed that most people were primarily interested in the investment piece because those were the ones that I was hearing from in response to the blog and everything that id written about. So I would have these clients come in, or prospective clients, and I figured all they wanted to talk about was how to build a portfolio and which ETF's to use and this and that.

Dan Bortolotti
And then you quickly realize that their eyes glaze over pretty quickly. Theres still a few, like, I still have a small number of clients who are really into this and do enjoy that kind of conversation, but the vast majority of people are not really interested in those details. Theyre interested in the fact that you know those details, and theyre interested in the fact that they want to trust somebody to look after something that theyre not prepared to do themselves. And I dont think what I truly appreciated until after I made the transition and I had been doing this for a number of years is the importance of trust. This affected a lot of the way that I would handle a meeting with prospective clients again early on, like I was all about, well, we can lower your costs by this and we can tax efficiencies, this, that, and the other thing.

And this is the percentage of what asset class were going to use. Theyre not interested in that. I dont think most people, what they want to know is, are you someone who I can trust with my life savings? Do I believe that you are acting in my best interest and do I need to know all the details of what's under the hood of my portfolio? Probably not.

But I want to know, what am I getting, what am I paying, and can I trust you? And that is really, I think, the most important thing. And once you win that trust, then you're likely to have a client for a very long time, and you're likely to have a client with an excellent investment experience. They're going to be happy because they don't. You know what?

You feel like I'm not going to denigrate any specific industry, but just pick one where you go in and you feel like, I cannot stand this retail experience because even though I need to buy this product, I don't like talking to the salespeople. I know they know more than I do and they're just using it to manipulate me. I have to do it because every two years I got to buy one of these items and its a miserable experience. You dont want that experience as an investor. You want the client to be able to call you and know that theyre going to get a straight answer from you and know that youre going to give them an answer thats in their best interest.

They want to be able to do that multiple times every year. A couple of times theyre going to call you with these questions. And that only comes after youve established the trust, and it doesnt happen right away. Even if they come on board as a client relatively quickly, its not unusual for it to take a couple of years. And ive certainly seen that evolution with clients over time.

Its very rewarding. Three, four years into the relationship, they share something with you that they didnt share before, and you go, okay, now I get it. Now you were kind of feeling me out for a little while and see, like, are you actually acting in my best interest? I dont know yet. You need to demonstrate that enough times that eventually they will come around, and thats a really important step in that relationship.

Benjamin Felix
How did you change your interactions with clients to shift from, I can build you a great portfolio to, you can. Trust me, Trey, honestly, I dont think it was a conscious thing. I think it was just by following my instincts. I will say that one of the things that I think I have brought to this role that other people with a different path maybe didnt have waste. My first career was as a communicator, and I have a good understanding of what we do.

Dan Bortolotti
But I don't have a brain like yours, Ben, and I don't have that kind of technical skill. And so it doesn't really come naturally for me to get overly technical. And I think that has worked in my favor. So I would just talk to people in a natural way. And I think that a lot of people who have had interactions with advisors have left the relationship because they felt kind of intimidated or condescended to.

And I just tried not to be that guy, just to try to listen to people, try to address their concerns in an honest and authentic way. And I guess it comes across, at least I hope it comes across. I mean, we know it does. Through your writing and speaking. That's very obvious that your communication skills are just on a different level than most people.

Well, thank you. And you're uniquely experienced. To answer this next question, which is, how do you think people should bake the decision between DIY or hiring an advisor? That is really a great question, and it's one I've spent. I think a lot of my career trying to wrestle with, I would say, let's start with just a basic one is the amount of money that you have to invest.

I mean, the fact is, its very difficult for investors with modest portfolios to find an advisor who will charge them a low fee and provide them with comprehensive service. They exist. I know your team, for example, doesnt have a minimum anymore, which I think is amazing. We have had a minimum for a long time, and we recognize that most people dont have our minimum. And so theres a lot of people out there who we just unfortunately cannot serve.

And that is why I think weve devoted so much energy to helping DIY investors, because we want to be able to do something for everyone. But if youre just getting started and youve got, lets say, under 100,000 to invest, its pretty difficult to find someone who will take you on and do a great job. I hope that you can find it, but its hard. So give it a shot, if youre so inclined, give it a shot as a DIY investor. Start small, start simple.

See how much you enjoy it. See how you respond to market moves. Do an experiment. And you know what? If it doesnt work out for you, what are the stakes?

Theyre not that high, right? I mean, unless you, when I say start out and you start out by like, speculating in small stocks, then the stakes are huge. But its hard to go too far wrong with a traditional ETF portfolio that you manage on your own, especially if you keep it simple. As you build experience, you may very well feel like youre ready to take on DIY full time. But I think the next step is, what is the complexity of your portfolio?

I mean, if I had a prospective client call me and say, I have a decent sized portfolio and its all just in my RRSP. Im a single person. I just have an RSP, nothing else. I think id try to talk them out of working with us in a way that I would just say, honestly, im not sure I can add a whole lot of value for something that straightforward. Just keep doing what youre doing.

If at some point in the future you need something more, let us know. If you are a couple and youve got seven different accounts, ones a corporation, youve got personal, non registered accounts. Good luck. As a DIY. I will tell you, having worked with a lot of DIY investors over the years, that is what defeats them.

And that is managing multiple accounts and trying to rebalance across multiple accounts, trying to juggle different financial goals, retirement education, et cetera. That is asking a lot of a DIY investor, and that is somewhere where an advisor can definitely add value. To build on that, I would say if you have taxable investments, whether theyre personal or corporate, the fees tax deductible. So now you have a great situation where a, we can do a lot more for you. If you have taxable investments, we can just add a lot more value.

And after taxes, youre paying less. So thats pretty good. I mean, we have large clients with big corporations and lets say your fee is 60 basis points, but its 30 after tax. You know how easy it is to add value for 30 basis points? Very, very easy.

Less so on the smaller investor with a really simple situation. I think the other thing that often factors in there is that that person that you just described will typically be someone whose time is very valuable. It would take more of their time to do this thing and they're a person who has a larger opportunity. Cost of time. Yeah, absolutely.

And I think that part is left out by a lot of people who, when they try to measure the value, like, what's the value of your time? People don't hire someone to cut the lawn because they're incapable of pushing a lawnmower. They hire somebody to cut the lawn because they would rather be spending their time doing something else. And for a lot of people, like you said, especially successful business people who have built wealth through corporations and that they have more money than they have time and they're willing to exchange one for the other. And there's nothing wrong with that.

Benjamin Felix
Yeah, definitely. What do you think someone should look for in a financial advisor once theyve made that decision? Trey? Yeah. Getting back to what we were talking about earlier, I think its so important to find an advisor or an advisory team that looks after both the investment management and the financial planning in an integrated way, because even though those two things are different, they are intimately intertwined and you cant really have one and ignore the other.

Dan Bortolotti
And one of the things im sure you guys have found, too, and prospective clients come and talk to you. We have so many people come to us who have had investment management, but they got zero financial planning from it. Their advisor, basically, he or she just managed the portfolio and picked stocks and nothing else. And thats just half a job. And with the model that is becoming increasingly common now in the wealth management field is the fees are pretty similar to what the investing only advisors used to provide.

But youre providing a much bigger scope of service and a much more useful integration of those two important factors. So I think that, I guess scope of service is the way I would answer the question. Youre getting all of those things and theyre done in an honorable way. I think transparency is another really important thing. I'm always blown away when talking to a prospective client.

When you say, do you have any idea what the fees are that you're paying now? They don't know. It's like, how can you not know? Right? And the reason is nobody has ever really disclosed it to them.

You definitely have to know what you're paying and what you're getting. And then how else do you assess whether you're getting good value? If you're talking to advisors and they're really vague about fees and I'm talking about management fees and product fees, both turn around and walk away because youre not getting an honest answer. Trey, I had some crazy interactions like that on Twitter. Someone dm me a while ago asking about, I dont remember what the question was about, but I asked them what their current fees were.

Benjamin Felix
It was a $2 million portfolio, I think. And they said 1% with investors group, its like, are you sure? What fund are you in? So it turns out theyre in a fund with a 1% plus mer and theyre paying 1% for advice. They didnt know about the fund fee.

Dan Bortolotti
So to your point, so its 2%, right? Exactly. Suddenly 1% becomes 2%. This is exactly the thing. So, I mean, I know what we always try to do.

Whenever were talking to people, we say like, look, heres our fee and average product costs is this, and youre always going to know that its right in the written financial plan. So you just have to know. I mean, again, were talking about peoples obsession with fees. Knowing what the fee is is only part of the question, what are you getting for the fee? Is the other part.

But you cant answer, am I getting good value until you know what the fee is? So that has to be full transparency on that. And shockingly, there isnt. Can you tell the story, Dan, of how you got connected with PWL? That was funny how that worked out.

Getting back to when I was working with MoneySense magazine, this is now 2012. I was acting editor at the magazine for a year or so, and I assigned myself a story what I had done on the blog. I, of course, had a pretty big following of DIY investors. And I got called out of the blue one day by Justin Bender, my current colleague here in the Toronto office. He was just starting out at the time there and he said, look, I have an idea for you.

He said, we want to do a little campaign for charity. What we want to do is we want to work with three do it yourself investors who come to us with some kind of, their portfolio is a bit of a disaster. They need a bit of a plan. They pay us a flat fee, which we give to charity. And lets see how this goes.

Justin said to me, do you mind putting something on the blog about this? Well see if it generates any interest. Well, not surprisingly, generated a ton of interest. So they worked with, I think it was three or four clients for charity. It was very successful.

People were thrilled with the results. I came to him and said, hey, if you have all these happy clients, it would make a great story for Moneysense magazine. And I called it renovate your portfolio. And what we did was I profiled these three clients who had worked with them. They came in, this is what our portfolio looked like.

We had an old plan, and Justin worked with me here, and this is how we built a new plan. Anyway, the piece was very successful and of course everybody started calling. And his colleague Shannon Bender, they werent married at the time, but were now together. And people were calling the Toronto office and saying, hey, I read this article in Moneysense, can you do this for me? He said, well, it was kind of a one off thing.

This is not really what we do. Anyway, one day, I mean, I started to hang out with them because we got along really well personally and were very like minded. And he said to me, have you ever thought about coming on board and doing this as an advisor? I literally had never crossed my mind. And he said, you know, what we could do is we could offer this kind of service where we help do it yourself investors, build a portfolio and get a financial plan.

He said, you could do that well, get the proper licensing and follow all the regulatory rules to get you up to speed, but you have a following, people will come to you. And they would work with me at the beginning, but of course I wasn't a licensed advisor, so I'd have to turn it over to them to build a portfolio. Anyway, long story short, we did a number of these. The service was so popular, we had a waiting list a mile long. We couldnt work with everybody we wanted to.

And eventually they said, why dont you think about coming on board, getting licensed and just doing this full time? That was 2013, and here I am eleven years later. Left that world behind and never really saw it coming. But I just so enjoyed actually working with people instead of just writing about it, that it really was a natural move. Trey, what happened with the DIY service.

It got to the point where it was just too difficult for us to manage it. And so it evolved over time. When we first brought people on doing it, there was no maximum amount. So we worked with some pretty large portfolios. Then we decided, no, we were only going to offer this service to people with portfolios that were more modestly sized.

Again, getting back to trying to fill that gap for people who normally wouldnt be able to come on board with us as full clients, fully managed clients. And then even that became too much. And honestly, the business just started to grow so quickly. We were bringing on new clients all the time and we just couldnt do it anymore. We sunset it.

That probably was around 2016, I think was the last time we did it. Super interesting. You guys together are such an incredible part of PWLs story. You joined? I think I joined a little bit before you did, but then you and Justin together just created this rocket ship in Toronto that I think really brought PWL to another level.

Trey, I think we have such complimentary skills. Justin, I mean he is so good at the portfolio management and the understanding of all the technicalities. I mean, I think you and he, Ben, are kind of kindred spirits in that way and that your brains work the same way. You're really good on that stuff and I'm not, but I enjoy the communication and getting out the message. And I used to say to Justin, you do so much great work, but not enough people know about it.

We got to get it out there. So we started to collaborate on a lot of things too, where he would do the research and he would have the ideas and then I would help him write it up. Hopefully I would bring some input into it as well. But we collaborated very well. And still to this day, I think we think in different ways, but when you put our heads together, we usually come up with some pretty good and innovative solutions.

And I would say that was one of the interesting things about all of that. When he and I got together and we started doing all of these resources for DIY investors on the blogs and white papers, and it was all free. And there were mutterings and people would say to us like, why are you giving away all this information for free? Youre just cannibalizing your own business? And we said, no, I dont think so.

Because if we go out there and we demonstrate our expertise, were going to attract clients and there will be some people who will mop up all of our content and go off and do it themselves, but they wouldve done it themselves. Anyway, theres a lot of people who would have said, you know what, I was thinking about doing it myself, but this sounds maybe a little bit more complicated than I thought. These guys seem to have our best interests at heart and they know what theyre talking about. Im going to give them a call. And im not sure that that was all that common of a marketing strategy at the time.

Remember, this is pre social media, which didnt really kick off until, I dont know, 2015, 2016. So this was earlier than that. I think it was counterintuitive, but it worked really well. It shaped the firm. It changed our whole firms approach, and thats become who we are as a firm now.

Benjamin Felix
And you guys really played a huge role in creating that. Trey, I think the way youve taken up that torch is really impressive because I remember having this discussion with people early on, and honestly, we had talked to other advisors who were saying things like, I got other firms and it was like, oh, I should do that. Okay, you should do that. But you can't wave a magic wand and create great content. We put in a ton of time, but we also brought, I think, some skill and talent to it.

Dan Bortolotti
And as you guys have found out, I mean, you generate an insane amount of content, but it is a full time job and it takes a really dedicated, smart person to crank out that much excellent content. There's a lot of people out there creating content that is very low quality. Or they start like a house on fire and they do it for six months and then they just fade away because they run out of energy or ideas. So that's why I think the fact that you have been able to do it for as long as you have is really impressive. So all of us at this company, I think, have fed off of each other's energy and talents, and it's been a very, very productive and creative place to work.

Benjamin Felix
Yeah. To your point earlier about Justin and I being kindred spirits, he was on vacation a few weeks ago, as you know, and he spent a lot of that vacation emailing back and forth with me. Yep. Modeling the budget, the proposed budget changes to capital gains. I thought that was pretty funny.

His vacation was spent in excel modeling. Yeah, that's pretty standard. I think, for him. It shows you the kind of dedication and just the focus. I think that's what it is.

Dan Bortolotti
Once he gets into something like that, he's not going to stop until it's done properly. And I tell you, its nice environment to work in with people like that. Yeah, definitely. As a cap to this conversation Dan, how do you define success in your life? Its something ive thought about a lot.

I would say the answer to that question has evolved over time, too. I think it wouldve been kind of achievement focused if you had asked me years ago. I dont necessarily try to focus on specific achievements anymore as a way of defining success. I think its about authenticity, and it's about showing up every day and doing the best you can. And if you get great results and if you accomplish amazing things, good for you.

But even if you don't, I think it's the effort and the honest approach that you bring to everything you do to me. If that's your mantra in life, that's what success looks like. Love it. Great answer. Great to have you join us and been great to work beside you for so many years.

Cameron Passmore
Thanks, Dan. Thank you, guys. Thanks, Dan.

Dan Bortolotti
Thanks, Dan.

Benjamin Felix
Thanks, Dan.