Max Shabalov (00:05)
Max Shabalov here and welcome to another edition of Financial Literacy Canada podcast. If you're starting to invest, you've probably wondered, should I hire an advisor? We're often told that investing is complicated, that ordinary people shouldn't do it themselves, that you need an expert who can outsmart the market. But is that actually true? My guest today is Dan Bartolotti. Dan is a portfolio manager at PWL Capital, the creator of the Canadian Couch Potato blog and the author of Reboot Your Portfolio 9 steps to successful investing with ETFs. In our conversation Dan explains why trying to beat the market is usually a losing game. We talk about realistic return expectations, global diversification, why Canadians should also own Canadian stocks and how index-based ETFs actually work. We also get into the practical things like when it makes sense to work with an advisor and when it doesn't, how to transition from expensive mutual funds to low-cost ETFs and why staying a passive investor is often harder than becoming one.
Dan Bortolotti, welcome to the show.
Dan Bortolotti (01:33)
Thanks for having me, Max.
Max Shabalov (01:34)
So you've written a book, Reboot Your Portfolio, 9 Steps to Successful Investing with ETFs, and the very first step, stop trying to beat the market. Meaning, do not try to outperform the rate of how the market grows. Why shouldn't you try to beat the market?
Dan Bortolotti (01:55)
Well, it's interesting that many investors seem to take for granted that their goal should be to try to earn outsized returns. And by that, mean, you know, picking stocks or timing the purchases of their investments in order to achieve returns that are superior to the market average. And while that makes sense intuitively, the fact is...the evidence is overwhelming that most people fail to do so. And even though we have really been conditioned by advisors and by people in the media to believe that that is the right way to invest, I think the first step in any investor's journey has to be letting go of the idea that their goal should be to beat the market. And related to that, that they need to beat the market. I try to make the argument in the book that as long as you can earn the returns of the stock market, you are likely to accomplish all of your financial goals just fine. You do not need to have any skill that allows you to beat the market in order to be a successful investor over time, which is a good thing because most people will not beat the market with their investment strategies. My goal here is to try to encourage people just to set up a strategy that captures everything the market has to offer, no more, no less, and focus on the things that you actually can control in your financial life.
Max Shabalov (03:38)
Yeah, and you said that a lot of people start actually with the question like what investment should I buy? Or they heard about ETFs, right? So they ask what ETFs should I buy? And actually I did the same like a few years ago as well. But you suggest starting with a specific financial goal. So how do you properly set up a goal for investing?
Dan Bortolotti (04:00)
Yeah, that's a really important point. I think all of us have made this mistake at the beginning of our investing journey. We really focus on what should I buy, right? And we focus on the products. And I think the right way to frame this discussion is to ask yourself, why are you investing in the first place? So for most people, think the answer is going to be at least on some level, I'm saving money now for my retirement, right? There are other financial goals, of course, other than retirement. But that's one that I think almost everybody will have at some point. And so if your goal is to save enough money to allow you to meet all of your desired expenses in retirement, then that should be the starting point for your investment journey, not what do I buy? First of all, where am I going? And then we can figure out how you're going to get there. If you start with how I'm going to get there, it doesn't make any more sense than getting into a car and starting to drive without knowing your destination. So it's really important, I think, for people to determine what their financial goals are, to define those goals as much as possible. And that's challenging, right? It's not as straightforward. One of the questions we get all the time, right, as financial planners are How much do I need to retire? Well, it depends on a lot of things. It depends on how many years you have left before you retire. It depends on how much you want to spend once you're in retirement, et cetera. But these are the questions that you need to start asking. And then once you have completed the process deciding what your goals are, then you can start thinking about how to build a portfolio in order to get you there, and then what building blocks do I need to assemble that portfolio. But you can't start with what should I buy? And it's a question that we all get, you know, as planners and advisors, and we always have to hit the brakes and say, wait a second, let's figure out where you're going first. And then we'll figure out the correct types of investments to purchase in order to get there.
Max Shabalov (06:23)
And then when you plan a goal, you recommend setting up a specific date, right? For example, let's say you're saving for a mortgage down payment or you're saving for business or financial freedom. So setting up a specific timeline and the goals, but what annual rate of return can people expect because that needs to be taken into account when they do their planning, right?
Dan Bortolotti (06:52)
Yes, exactly. So, it's a good point. So, let's say, and we'll just use some numbers as an example. Let's say you have determined that you need to save a million dollars before you retire, and you have 25 years to get there. And now you figure out, well, how much am I able to save every month towards that goal? And now you need some software or a spreadsheet. Then you can figure out if I save X number of dollars per month for 25 years in order to get to a million dollars, I need a particular rate of return. Let's say that rate of return is 14%. Well, I think you should know right off the bat that you are highly unlikely to get a return like that without taking enormous risk with huge potential downside. What is a realistic rate of return? Well, that's a difficult question. There are lots of people who have tried to, or lots of people who continue to try to forecast returns going forward. Certainly in the short and even the medium term, it is almost futile to try to do so. But we always need to use some realistic assumptions. And you know, various reputable sources have estimated rates of return that can be useful in financial planning. Our firm, PWL Capital, publishes them. ⁓ FP Canada, which is the organization that administers the certified financial planner designation, also publishes these. And so, let's say, for example, you decide that a realistic long-term expected return for stocks is seven or eight percent, which I think is reasonable. And your long-term expected returns for bonds and GICs is somewhere around three percent these days. Obviously, that changes as interest rates move up and down. Now, you at least have some framework. And if, for example, you need a rate of return of five percent in order to meet your goal, and if stocks you expect to return around seven or eight and bonds in GICs around three, well, you know that you can probably achieve your goal or at least you can expect to achieve that goal with a balanced portfolio that includes both stocks and bonds in GICs. It can't be all bonds in GICs because you're pretty confident that you're not going to get 5 % with conservative investments like that. You could go 100 % stocks and hope to get 8%, but that might be taking much more risk than you have the stomach for. So again, we can get hung up on the individual numbers, but the important concept here is once you have a target rate of return, then you can use that to help you figure out how much risk you need to take in your portfolio. And you want to take enough risk to allow you to achieve your goal, but probably no more. Because one of the easiest ways to sabotage yourself as an investor is to take more risk than you're comfortable with. And then you can find yourself in a position where if we have a dramatic market downturn and your portfolio loses 20 or 30%, you panic, you sell when everything is low, and you don't buy back until the markets have recovered. And that is the most reliable way to blow up a long term investment plan. So it is really important not to overestimate your risk tolerance.
Max Shabalov (10:53)
Right. And once you determine the structure, then we can talk about the investments we can purchase. let's start with stocks. You suggest having a very diversified portfolio and then ⁓ we'll talk about ETS later, but you suggest having one third in Canada, one third in US and one third in international equities, and when we look at the historical data, the US tends to outperform Canada and international equities. So why should we consider Canada and international equities?
Dan Bortolotti (11:34)
Yeah, so there's a couple of things to say here. I think that the outperformance of US stocks is primarily a recent thing. I remember about 10 to 15 years ago, if you looked at the performance of global stocks going back, let's say to the 70s, 1970s, the performance of Canadian, US and international stocks, at least measured in Canadian dollars, was really remarkably similar until about 2010 or so. That's when the US outperformance really took off. In the last 15 years, for sure, the US has been the biggest performer. However, I think it's always useful to look back at history and remember that we had a whole decade, the first decade of the 2000s, where US stocks performed very poorly compared to Canadian and international stocks. If you go back further into the 80s, for example, international stocks led by Japan were the clear outperformers. So, there will always be periods where one of those markets will be the big winner and the others will lag. And we can never predict those in advance. And I think it's naive to think that just because the US has been the best performer over the last 10 or 15 years, that it will continue to be that over the next 10 or 15 years. So I think it makes sense for all of us to diversify globally. And that means holding significant portions of Canadian US and international stocks. It doesn't need to be one third one third one third I think that's a good starting point you could decide to overweight or sorry give a little bit of extra weight to the US maybe 30 % Canada 40 % US 30 % international something like that the actual numbers don't matter all that much I think the important point here is that you have some exposure to global stock market all of the time, rather than simply assuming that the most recent outperformer will persist indefinitely.
Max Shabalov (14:05)
And you say Canadians equities make up only 3 % of the global equity market, but you still suggest having a portfolio of Canadian equities in a decent size, even one third is a good rule. Why is that then?
Dan Bortolotti (14:21)
Yeah, it's a great question. It's one that we get asked a lot. Some people think it's just a kind of patriotism that, you know, we're saying we should support the Canadian economy and support Canadian companies. you know, that's fine if you want to do that, but that's not the reason. There's really a number of reasons why it makes good sense to, for a Canadian investor, to add additional weight to Canadian stocks. So the first one is currency risk. So if you live in Canada and you earn your income in Canadian dollars, and presumably if you retire here, your expenses will be in Canadian dollars, then it does make sense to match your assets with that future expense. So in other words, to hold assets denominated in Canadian dollars. Now, when you hold US or international stocks, even if you buy those US and international stocks with funds that are denominated in Canadian dollars, you're still completely exposed to those foreign currencies. So if you buy US stocks, you have full exposure to the US dollar. If it goes up or down relative to the Canadian dollar, that will affect your returns as measured in Canadian dollars. The same is true of international stocks, which will be denominated in a whole basket of different currencies from euros to yen to pounds, cetera. you probably don't want 97 % of your stock exposure to be denominated in a foreign currency if you are living in Canada and expecting to spend Canadian dollars, right? Some foreign currency exposure is actually very valuable. It has a huge diversification benefit, but that has limits. And I think it's reasonable to keep a significant amount, roughly one third of your stock exposure denominated in your native currency. So that's one reason. The other reason is that there has been a lot of research on what is the optimal amount of Canadian stock exposure in a portfolio in order to reduce volatility. So in other words, how much in Canadian stocks should you hold if your goal is to ensure that your portfolio will have its ups and downs reduced as much as possible? And it turns out that the amount, the optimal amount to reduce that volatility is right around one third. Again, it doesn't have to be exact, but it's somewhere in that ballpark. And so a portfolio that is 30 % Canadian stocks will be less volatile than a portfolio that is 3 % Canadian stocks. Okay. So that's the second reason. There's also a significant tax benefit for Canadian stocks if you are holding your investments in a taxable account. So this is not relevant, if you're investing only in an RRSP or a TFSA. But if you are investing in a taxable account, all the dividends from Canadian companies are taxed much more favorably than dividends from foreign companies. so, given the same return on a pre-tax basis, Canadian stocks would actually outperform on an after-tax basis. So, I think all of those reasons together provide a pretty good argument why it makes sense to overweight Canadian stocks versus their 3 % share of the global market.
Max Shabalov (18:21)
Yeah, these are great reasons. And actually, I only invest in the US and after reading your book, I realized, no, I should actually reconsider my portfolio and then divide into one third of Canada, US and international.
Dan Bortolotti (18:37)
Or at least have some exposure to all of the regions. Again, it's not really a magic formula that it has to be one third. But I think even if you lived in the US and all of your income and expenses were in US dollars, I think most experts would still tell you you should hold some portion of your ⁓ investments in international stocks. Remember that the US, I mean, it is by far the largest market in the world. It's over 60 % of the global stock market now, but that's still another 40 % of the global stock market that I don't think we can ignore completely. So it just provides a huge benefit for any kind of political issue as well, right? I mean, the US could suffer some kind of economic or political catastrophe that strongly affects the US market. Obviously, that would have a ripple effect around the world. But I don't think anybody should concentrate all of their investments in a single country, no matter how big or powerful that one country is.
Max Shabalov (19:52)
Now then, when it comes to diversification, how do you actually buy this one third? What are the ways to diversify your portfolio?
Dan Bortolotti (20:01)
Well, ⁓ the old traditional way was to choose an index fund or an ETF that held stocks in each of those three regions. So for example, you could buy ⁓ an index fund that represented the entire Canadian stock market, that would be one fund purchase. You'd buy another one that represented the US stock market. And then you could buy a third that represented international stocks, so stocks outside of Canada and the US. The good news is that in the last several years, there have been some outstanding new products ETFs launched that allow you to get that diversification with just a single fund. So it really has never been easier than it is now. So you can look for a number of ETFs from all of the big ETF providers in Canada, which include Vanguard, iShares, and BMO. And all of them have ETFs that essentially give you global stock market diversification in one fund. And not coincidentally, these funds are typically set up to hold roughly a third Canadian. Some of them go as low as a quarter. let's say 20, somewhere between 25 and 30% of ⁓ these funds are in Canadian stocks. The rest is in US and international stocks. So if you are looking as a do-it-yourself investor to purchase a globally diversified stock portfolio, it's so simple to do it now by just purchasing one of these funds.
Max Shabalov (21:46)
And do they include bonds as well then?
Dan Bortolotti (21:49)
So you can also purchase versions of these funds. They're called asset allocation ETFs. That's the formal name for them. And they are essentially designed to be a ready-made portfolio that you would just figure out the appropriate amount of risk that you want to take in your portfolio and then just purchase one ETF that matches that risk profile. So as I said, there are some that you can purchase that are just 100 % stocks. For most people, that's too risky. For people who are more balanced investors and they want to hold, say, 80 % stocks and 20 % bonds or 60 % stocks and 40 % bonds, there are versions of these ETFs that have those asset allocations as well. So again, you can just purchase one fund with that global stock diversification on one half of the portfolio, and or I should say one side, it might be more or less than half. And then on the other half, it's a bond diversified bond portfolio. So really, once you have made the decision about ⁓ what asset allocation or what mix of stocks and bonds is most appropriate for you, then it's pretty easy to find a single fund that matches that objective for you.
Max Shabalov (23:15)
And then for those who are not familiar with index-based ETFs, what are they, how do they work?
Dan Bortolotti (23:22)
Sure. So I think it's worth just understanding a little bit about what an index is. And then we can talk about what an index fund is or an index ETF. So an index is a, ⁓ it's an attempt to measure all of us particular asset class. So what does that mean? Okay. Let's say, for example, you're building an index of the Canadian stock market. Your goal is to represent the broad Canadian stock market. So in other words, if my my goal as an investor was to say, I just want to buy a piece of the entire Canadian stock market, how would I do that? Well, indexes are created by companies to try to represent that. let's look at it this way. What are the largest companies in Canada? So they're Royal Bank, Shopify, TD Bank, right? Like we know most of the big banks are going to be in the top there. And we have a couple of other large companies that are at the top. The index would have a share to each of those big companies relative to their share in the overall market. And so let's say, and I'm making these numbers up, I don't have them in front of me. Let's say that Royal Bank is 5 % of the Canadian stock market. Then in the index, Royal Bank would represent 5%. And each company gets weighted proportional to its size in the market. So if I, as a Canadian investor, want to put $10,000 into the Canadian stock market, I can purchase a fund that follows that index and it will put 5 % of my money in Royal Bank, if that's the size, and 3 % in TD Bank, whatever that number happens to be. And you will then be able to buy virtually all of the major stocks in the Canadian stock market in proportion to their size. So, the smaller companies you're going to own a much smaller share, the bigger companies you're going to own a much bigger share. Now, there are indexes that track all of the major asset classes. So, not just Canadian stocks, but US stocks is another one, of course. The S &P 500 is probably the most famous index that investors will know. It is an index that tracks the 500 largest US companies. you wanted to purchase $10,000 worth of the broad US market, you could purchase an index fund that tracks the S &P 500. Technically, it doesn't track the whole market, it really only tracks the biggest companies, but it's a pretty good proxy for the US market. So, the idea here is that indexes and index funds allow you to buy entire markets with very broadly diversified portfolios, hundreds, in some cases, thousands of stocks, all weighted according to their size. So you are not really making any decisions about which specific stocks to buy. You're essentially buying all of them and you're buying all of them in proportion to their footprint in the market. Historically, even though this sounds like a very simple strategy, historically, it has been extremely difficult to beat that approach. So in other words, if you try to purchase individual stocks and try to outperform that index, you might be successful doing it. And almost certainly some people will be successful every year at doing it and even over five and even over 10 year periods. But the longer those periods go, the harder and harder it becomes to outperform the index. And so, if I say I'm an index investor, it means my goal is to simply achieve the same return as the market indexes over time, rather than trying to outperform them, which as I said, is a very low probability event.
Max Shabalov (27:43)
It's even hard to the market for professionals, right? Not just for ordinary people, but for professionals that manage mutual funds. So why do people invest through mutual funds still?
Dan Bortolotti (27:56)
Well, I should say that it's not the fault of mutual funds specifically. There are lots of strategies and lots of professional advisors that don't use mutual funds, but still face the same problems. So the first one is just that the market is extremely efficient. And what that means is, you know, prices for stocks are not perfect. It doesn't mean that they're never quote unquote errors in pricing. But the fact is the market absorbs all available information very, very quickly. And so if a stock is trading for $20 a share, you know, that is the market's best estimate at what that stock is worth. And if you feel you have some specific knowledge that that stock is actually worth $22 and I'm going to buy it at 20 because that's a bargain. Or I think that stock is actually worth $18 and $20 is overvalued. You really have to ask yourself why the market doesn't know that. And the point here is that it doesn't really matter how smart you are or how much access to information you have. The market almost certainly already knows what you know. And the only way to beat the market is if you have some kind of knowledge that the market has not yet absorbed. And again, you really need to ask yourself, especially as a do-it-yourself investor, why do you think you know more than the market when the market prices are established by every participant in the market? And it's really quite naive to think that you can outsmart the market in that way. even the smartest market professionals with access to the best quality data cannot hope to outperform the market consistently over time. There may be tiny inefficiencies that they can exploit, but they don't last very long. And the other part of all of this is Anytime you invest in any kind of strategy designed to beat the market, there's a cost involved. And you mentioned mutual funds because I think mutual funds have a reputation for high fees, which they deserve in Canada. the fact is, even as an expert, if you could hope to outperform the market by 1 % a year, for example, that would be an extraordinary achievement. If you are going to charge investors one and a half percent to invest in your fund, then they're still going to trail the market by a half a percent after costs. it would probably be better for you to simply purchase an index fund that charged 0.2 % and underperform the market by 0.2 % instead of 0.5%. So the idea here is costs matter, ability to outperform the market is very slim and it is easily outweighed by the costs. very often, it's not unusual actually for funds to outperform the market before costs, but underperform after costs. And as the investor, all you really should care about is what your performance is after costs.
Max Shabalov (31:47)
Right, and once a person selected their index-based ETFs, they understand they can do it themselves, but would they still need an advisor and if they need, in which situations?
Dan Bortolotti (32:00)
Yeah, so I think that, I mean, obviously, as an advisor, I have a vested interest in that question. But I think you know, you know, my background as an investor advocate, and as someone who has really promoted DIY investing over the years. ⁓ I think I'm in a good position to answer that question, because I have worked with so many people on both sides of the fence, right? I've helped a lot of DIY investors, who I know will succeed and will probably never need an advisor. And there are others, you know, including clients that I work with that I'm pretty confident would not be able to do it on their own. And I'm sure they would admit the same thing. So there's a number of things I think that you need to ask yourself when you're trying to decide whether you want to be a DIY investor or work with an advisor. Frankly, the first one is the size of your portfolio. And I wish this wasn't the case, but the fact is that most advisors in Canada who work on a fee only basis and are not charging you commissions on product sales and things like that, and that includes advisors like us, you know, we charge a fee based on the size of your portfolio. It's just not practical for us to be able to work with clients who have a small amount of money to invest. And by small, unfortunately, I'm talking about even 100,000 or so, you know, ⁓ it was very difficult for us. We would have to charge such a high fee that it would make no sense for you to work with us. And so I think if you're just in a position where you have a kind of five figure or low six figure amount to invest, then it's going to be very difficult for you to find an advisor who charges a reasonable fee and ⁓ provides a good level of service. And so I think in that case, it makes sense to at least consider do it yourself investing or, you know, and we can talk about these other options like robo advisors, et cetera. But I think when you're at that level of assets, think DIY becomes very compelling. On the other side of that spectrum, if you have a very large portfolio, and especially if that portfolio is spread across multiple accounts. So let's say it's a household and you and your spouse, spouse both have our RRSPs, TFSAs, maybe you've got a taxable account, especially if you've got a corporation. Now it's getting a lot more complicated. You've got a lot more moving parts to juggle. And in my experience, this is where many DIY investors say, okay, this has become too much for me to manage on my own and I need some help from an advisor. I think you also have to be honest with yourself about whether you have the inclination and the interest in investing, right? I have seen a lot of people attracted to do it yourself investing because they know it's very low cost and maybe they're working with an advisor and they feel the fees are too high, and then they become do it yourself investors and they realize they just don't have the time to put in or they're not really very interested in it. And sometimes it just gets neglected for a couple of years. They forget about RSP contributions. The portfolio is now out of balance. It has an inappropriate level of risk. All of those dividends that have built up over the months and years were never reinvested. So, you need to put a little bit of effort into being a DIY investor. It's not that hard, but it's also not completely hands off. And then I think the final thing, and I have certainly heard this from a lot of my clients who have the skill and expertise, I think in many ways to manage a simple index portfolio on their own. It's nice to have someone as a behavioral coach, just somebody to stand between them and their emotions. And you know, we get calls from clients when the markets crash and they say, you know, should we be doing something? Should we be selling? Should we be making some changes to the portfolio? And just to have us say, no, remember we have a long-term plan in place here. The strategy did not assume that there would never be a market crash. We knew this would happen. We didn't know when. We knew market crashes are inevitable and just to prevent people from self-destructive behavior can be worth much, much more than the annual fee that they pay. And then if I can just add one more thing, it's that ⁓ most advisors these days, and I'm very grateful that the trend in the industry is moving this way. Most advisors at firms like ours understand that the service we provide is not just about investments. It's not just buying and selling ETFs in your portfolio. In fact, most of our day is spent on financial planning for our clients, and that's helping them make good decisions, and it's helping them in all other aspects of their financial life, you know, with their mortgage, their insurance, their tax planning, their estate planning, and all of that is included in the fee that they pay to us as advisors. And in so many ways, those services are more valuable than managing the ETFs in their portfolio. And if you're going to be a DIY investor, you will need to look after all of those other services yourself, or you would need to work with a fee only financial planner to provide those other services if you need them. And if you're young and all you're doing is saving a bit of money every month, you may not need any advice like that. You should not pay for advice you don't need. But as you get sort of into middle age and maybe closer to a planned retirement date, those planning services become a lot more important and a lot more valuable.
Max Shabalov (38:37)
Yeah. So basically if you have a small portfolio, it's actually efficient to be do it yourself investor. And yes, ⁓ if you have a large portfolio, more than 200,000 and with all the complexities, then it's great to have an advisor like you, those that focus more on financial planning. Actually, a lot of advisors are not even licensed to sell ETFs. they would only sell to you mutual funds and for those people who are new to investing, it's easy for them. They will open an account and then we'll start investing. But for those who have an account with an advisor and then they realize they pay fees to the mutual funds and they want to transition now. They want to become a do-it-yourself investor. ⁓ But actually those advisors, they all kind of have a playbook how to second guess the decisions of those people who want to transition. What do these advisors say to make people stay with them?
Dan Bortolotti (39:38)
Yeah, this is a very important point that we didn't really discuss earlier, right? Because when you had asked me about why we should not try to beat the market right at the beginning of our conversation, I didn't mention that my opinion, well, it's not even my opinion, it's the fact that most advisors and most professional money managers fail to beat the market, although they try. It does not change the fact that the vast majority of them still try to do it and still believe that they are among the precious few advisors out there who will succeed in outperforming the market. And so let's say you have your account with an advisor, you're invested in these mutual funds that are designed to outperform, they have high fees and you've decided that's it, I've had enough, I want to move my account out from this advisor and invest on my own in low cost ETFs. So now you get a lot of advisors who will start what I call kind of fear mongering. their job here is to basically scare you into making that decision. So they will say things like, well, ETFs and indexing, that works really well when the markets go up. But when the markets go down, those ETFs are going to go down too. Whereas I can move you into cash or I can move you into defensive investments and save you money during a downturn. And that sounds very convincing. And it's actually true on one level because I think it is very important to understand that if you're an index investor and you buy into the global stock market and the global stock market falls 20 % next year, you're going to lose 20%. You must accept that. If you were working with an advisor who had you in mutual funds, for example, and before the market reached bottom, they sold some investments and they got defensive, maybe you would lose only 10 or 12 % instead of 20. That would be considered a benefit. And it's true, in the short term it would be. But in the long term, and this is the part they always leave out, most people who do that are still sitting in those defensive investments when the markets recover. And then when the markets recover quickly, which they very often do, they will underperform at that time. And overall, over the very long term, you would usually have been better off simply buying and holding the index the whole time. they will tell you that they can protect you from losses, but in fact, in the long term, they are unlikely to be able to do so. They're also in you, you hinted at this a minute ago, Max, when you said a lot of advisors are not licensed to sell ETFs. This is true. And so sometimes advisors will, you know, say ETFs are overrated or not. Or dangerous, they'll use all sorts of terms to try to discourage you. But the simple fact is they're not able to sell them to you, and so they have no choice but to say things like that. And that's disappointing, but it is still true in this industry. Many advisors at bank branches, for example, are licensed only to sell mutual funds. If you only sell mutual funds, then that's the only thing that you have to present to a potential client and you're not really getting the full story from them. Right? So I think if you're going to be a DIY investor and you've done the research and you're confident about it, when you let your advisor know, it's important for you to stick to your guns and follow through and not listen to the kind of scare tactics that you're likely to get.
Max Shabalov (43:49)
And when you make this transition to the new online brokerage, what is the first step then?
Dan Bortolotti (43:56)
So the first thing you need to do is open accounts at the new brokerage. So in other words, before you even think about transferring out from the old brokerage, let's say for example, you have an RSP and a TFSA with your advisor, then you need to open new accounts at your new brokerage, a new RSP and a new TFSA. And then once those accounts have opened, then you work with your new brokerage to complete transfer forms in order to move the funds from your advisor into your new DIY account. You can't simply call your advisor and say, I've decided to move my accounts, send the assets here. It doesn't work like that. The transfer always originates with the new brokerage. they will typically help you. Obviously the new brokerage wants to help you because they're gaining the assets, whereas your advisor is losing them. So they will work with you to fill out the necessary transfer forms. And most of the time you can ask for the transfers to occur in kind, which means that instead of everything being liquidated or sold at your advisor's accounts, you can move all of the funds over or the stocks, whatever the investments are, they can just transfer into your new accounts and then you can sell them yourself when they arrive. The benefit there is it can sometimes take a week or two or unfortunately even more for these transfers to occur. And you probably don't want your accounts to be sitting in cash for a couple of weeks while that happens. the market moves sharply, could, well, look, it can work both ways, right? You could miss some big losses or miss some big gains. But think just in general, makes sense to try to stay invested as long as possible and move all of your accounts in kind.
Max Shabalov (45:56)
Yeah, that's great. And then in your book, you talk about also once you become a do-it-yourself investor, how you rebalance. And another section talks about that it's often easier to become a passive investor than to stay one. What are the challenges that index investors face when they do it themselves and how can they keep on track?
Dan Bortolotti (46:21)
Yeah, I think the biggest challenge is just temptation. And what I mean by that is index investing works over the long term. The evidence is clear on that, but it is also quite boring. if one of the things that you enjoy about investing is being hands-on and following the markets every day and trying to make smart trades or researching stocks in companies and industries that you like. Index investing is not for you. It is really a hands-off, buy and hold, ignore the daily news strategy. And it can be very tempting when your friends and your family members have a more active approach and they're talking to you about the investments that they're buying. And I guarantee you they're only going to tell you the stories about their great successes and they won't share any stories about their big failures. And this is even more of a challenge today when so many people invest in speculative things like crypto or meme stocks. And these are things that can enjoy huge returns in the short term, huge losses as well. But the huge gains can be very tempting. And even though you can enjoy very considerable long-term success with an indexing strategy. And look, even in a year, like what the Canadian stock market is up 30 % in 2025, you can have some very big years even with a broadly diversified portfolio. But you're not going to hit the home runs the way you would or the way you can if you invest in more speculative investments. Now, you're also not going to go 0 for 5 with five strikeouts. But again, nobody's going to tell you about those failures. And it can be very easy to get seduced by the short-term success that you're hearing about. And you start to feel like, you know, maybe I need to diversify a little bit more by adding a few individual stocks or alternative investments and things. And really, I think the true enlightenment comes when you realize that tuning out that noise is really the best thing you can do as a long-term investor.
Max Shabalov (48:46)
I love it so boring stuff works.
Dan Bortolotti (48:48)
It really does, but it is boring. I have often found people will ask me when they first meet me, what do you do for a living? I say I'm an investment advisor. They start asking, what stocks do you like? What have you bought recently? It's like, I don't have any stories for you. I wish I did, but the stories are really uninteresting. But I will say I think our clients have been the beneficiaries of that boring strategy for many years.
Max Shabalov (49:17)
I love it. Well done. This has been a great conversation. Where can people go and learn more about you and your work?
Dan Bortolotti (49:24)
So, you can, I would say if you're interested in the work, the best place to go is just on Amazon or any local bookseller and find a reboot your portfolio. That is the best outline of everything we've talked about and the best guide that I felt I could put together for people who want to be DIY investors. If you want to learn more about our firm, we're at PWLcapital.com.
Max Shabalov (49:52)
Well, fantastic. Thanks for your time. It's been a pleasure.
Dan Bortolotti (49:54)
Thanks so much, Max. I appreciate it.
Max Shabalov (49:57)
My guest today was Dan Bortolotti, he is the author of Reboot Your Portfolio, 9 Steps To Successful Investing With ETS. It is available on Amazon.
