My Four Credit Card Portfolio

I’ll start this with the disclaimer that personal finance is personal. Basically, I’ve found that this combination of credit cards works fantastic for me and my family, but based on how your spending differs from ours, it may work better (or worse) for you.

It seems to be fairly common for people to have one or two credit cards, having their main credit card and a back-up or ‘just-in-case’ credit card. I approach and use my credit cards a little differently, using multiple cards on a regular basis. If it sounds like it’s out of control, it’s actually far from it. I have a system that is optimized to maximize rewards and minimize fees. Through credit card rewards or costs that I haven’t needed to pay, I end up with hundreds of extra dollars every year.

Through rewards or costs that I haven’t needed to pay, I end up with hundreds of extra dollars every year.

I’ve developed this system with the following principles:

  1. Cash is king: I love cash back, it is my preferred rewards type and all my cards are cash back or equivalent.
  2. No annual fees or minimum spending requirements: By avoiding credit cards with annual fees, I give myself the most flexibility (it’s easy to cancel a card or apply for a new one if there’s a new card that offers me more value than a current card), and I completely avoid the thought of “needing” to spend more money to meet a spending requirement.  This is especially important because instead of having a primary credit card that most of my spending goes on, it is divided between multiple cards.
  3. Never carry a balance: This may be my most important rule. It is imperative to pay off every monthly bill in its entirety and on time. Carrying a balance will end up costing you more than the rewards you’re earning.
  4. Spend as little as possible, but use your credit cards as frequently as possible: Never increase your spending just because you have credit card rewards. The extra spending will end up costing you more than any potential reward.  Rather, use your credit cards as often as you can to maximize your rewards (in general, you don’t earn any rewards or save money if you use cash, cheque or debit), but only on your regular spending or on purchases that you need (not want). In short, use credit cards as a transactional tool that can earn you rewards instead of using them as a source of credit.
  5. Use the card that gives you the Most Bang 4 Your Buck: I’ll explain this in more detail later in the post, but all credit cards are not made equal and can be better (or worse) for you depending on the context and situation.
  6. Don’t necessarily take every credit limit increase that is offered (and even request lower credit limits). This one is a bit tricky because it depends on the situation. In general, I will decline offers for increases to my credit limit. In general, the credit limits I have are far more than I use (in part because I’m running 4 cards). I don’t take the higher credit limit because often I don’t need it. Most months, I’ll never exceed 30% of the credit limit. Also, keeping your credit limits low(er) helps you control your debt-service ratio, which can be important if you are going to apply for a mortgage or vehicle financing. However, taking a credit limit increase when it is offered could be advantageous if you’re using a bigger percentage of your credit limit than I am, if you are still able to pay the entire balance every month.  Also, it’s typically easier to take a credit limit increase when it’s offered, than to ask for one.

Capital One MasterCard for Costco Members

I use the Capital One Mastercard exclusively for Costco members to increase my cashback rewards, using it exclusively for gas (2% cashback) and restaurant (3% cashback) purchases. Ironically, I don’t pay for my groceries at Costco with the Capital One Card because I would only get 0.5% cashback (gas gets 2%, restaurants get 3% and everything else all receives a measly 0.5% cashback.

Individual vendors are categorized according to the merchant code assigned by MasterCard, so occasionally I won’t get the cashback rate I’m hoping for. For example, I’ve used the card to pay for gas at a business that was designated as a convenience store instead of a gas station by MasterCard. In general, this happens very infrequently. On the other hand, I’ve also discovered that at least one catering company is classified by MasterCard as part of the “restaurant” category, which gave me a nice boost to my cashback rebates.

I’ve found this card to be quite useful to me. Other than my grocery shopping, gas and restaurant purchases tend to be my next biggest spending categories. Since I do most of my grocery shopping from stores that are classified as “department” stores instead of grocery stores (and I haven’t found a credit card that gives you more than 1% cashback at these stores), it’s hard for me to do better than this card.

Once a year, you are mailed a rebate for all the cashback that you have accumulated. You can then bring that rebate into a Costco store and exchange it for cash or apply it to your grocery bill that trip.

I use the Capital One Mastercard to increase my cashback rewards, using it exclusively for gas (2% cashback) and restaurant (3% cashback) purchases.

The one catch with this card is it is only offered to Costco members.

President’s Choice World Elite MasterCard

The PC WE MasterCard is my primary card. Strictly speaking, it’s a points card, not a cashback card.  Cardholders earn PC Optimum points on their purchases, that can be redeemed in-store (at Superstore or other PC-branded or Loblaws stores) to your grocery bill. In essence, it functions for me as a cashback card with a degree of flexibility not always found with cashback cards. I can apply points towards my grocery purchases when I want to. I like this feature because I can accumulate my points as long as I want, and redeem them when it’s most useful to me. Typically, I’ll use them when expenses are higher (like during the holiday season December and January), or when my income is lower (typically in the summer).

At minimum, I earn the equivalent with 1% cashback in PC Optimum points on all my purchases. With the number of accelerators available with this card, I’m frequently earning more than the 1% minimum. For example, I earn the equivalent of 3% back from all my purchases at Loblaws stores. This comes in handy because we do a significant portion of our grocery shopping at Superstore. You can also earn additional PC Optimum points on grocery purchases that qualify for the weekly bonus offers through the PC Optimum program.  The PC Optimum bonuses are delivered via email or through the PC Optimum app and offer you an extra 20% back in PC Optimum points.  For example, you could get 1,000 points (which are worth $1) on every $5 spent on Joe Fresh apparel.  You also get double the points on gas purchases at Superstore gas bars (depending on what the prices are at the pump, 99.9% of our gas fill ups are at Superstore Gas Bars with the PC WE MasterCard or at Costco with the Capital One Mastercard). Whenever I’m booking any flights, I’ll typically check the PC Travel website (which is exclusive to PC MasterCard holders), to see if there are any special offers. I’ve received 5% cashback in PC Optimum points on trips who’s pricing was competitive with all other booking options.  On a $500 dollar trip, that’s an extra $25 in points!  Stay tuned for another post, where I review the PC Optimum in more detail.

I earn the equivalent with 1% cashback in PC Optimum points on all my purchases. With the number of accelerators available with this card, I’m frequently earning more than the 1% minimum.

You need a minimum $80,000 personal income or $150,000 household income to be approved for the President’s Choice World Elite MasterCard.  However, you don’t necessarily need those income levels to get this credit card.  You could, as I did, work your way up through the family of President’s Choice Mastercards.  I started with the basic PC Mastercard.  Based off of my spending, I was offered an upgrade to the PC World Mastercard.  At some point after being upgraded to the World Mastercard, I noticed that the World and World Elite Mastercard have minimum spending levels in addition to minimum income levels.  After a year in which I had accumulated the requisite $25,000 in annual spending, I phoned customer service and asked if I could be upgraded to the World Elite Mastercard and voila!  A week or so later, my WE Mastercard arrived in the mail.  In this case, I didn’t necessarily have the minimum personal or household income levels to get the WE Mastercard.  However, I was able to get the perks and benefits of the WE card based off of my annual spending and the fact that I always paid off my balance in full.

The PC WE Mastercard has worked for us for three main reasons: 1) It’s minimum 1% cashback equivalent is quite competitive with the other no annual fee credit cards out there; 2) the 3% cashback equivalent you receive at President’s Choice branded retailers has a lot of value to us because we do so much of our grocery shopping at Superstore; and 3) I can redeem my points for groceries when I want to.  The convenience of having the PC WE Mastercard double as your PC Optimum points card is the cherry on top!

The PC WE Mastercard earns between 1% and 3% cashback and let’s you redeem your rewards at your own discretion.

Home Trust Preferred VISA

I have the Home Trust (HT) Preferred VISA more so to reduce fees than accumulate rewards. HT VISA includes roadside assistance for cardholders, though I hope to never have to use it. Having this as an included feature on a no annual fee credit card saves me over $100 a year.  As an Alberta driver, I would be paying for an AMA membership if I didn’t have this card to have the roadside assistance. The HT Visa gets me this coverage for free!

I have the Home Trust Preferred Visa more so to reduce fees than accumulate rewards.  I get roadside assistance coverage for free with this card.

The other cost that I avoid by using the HT VISA is foreign currency conversion fees. On almost all other credit cards, you end up paying an extra 2.5% premium on top of the current exchange rate on any transaction not processed in Canadian dollars.  Whether it’s online shopping in USD or paying for anything while traveling outside the country, that 2.5% can add up quite quickly. I use the HT VISA because it is one of the few credit cards that doesn’t charge the 2.5%.  It usually costs somewhere close to $1,000 for each week you travel abroad (roughly $150 per day in accommodation, meals, excursions and shopping x 7 days).  Some trips will be more expensive and others less but $1,000 gives us a rough ballpark.  Each week you travel, you’ll save roughly $25 by using the HT VISA instead of a card with a foreign currency fee.  The fact that I get 1% cashback rewards on all transactions is an extra bonus.

The other cost that I avoid by using the HT VISA is foreign currency conversion fees.

Because the 1% cashback rewards on the HT Visa is either the same or lower rate than my other cards, I only use this card if I’m spending on foreign currencies or if a vendor or business accepts Visa but not MasterCard. There are frequent months where I don’t spend a single cent on the HT Visa (this means there’s one less bill to pay and makes it easier to stay organized) but I keep it for the free foreign currency conversion and roadside assistance.

West Jet World Elite Mastercard

The RBC WJ WE MasterCard is another credit card I use to avoid fees and lower costs, rather than for the rewards that it offers on your spending.  It does come with an annual fee of $119, but you’re able to cover that cost and save some money if you travel once or twice a year.  The card covers the $30 fee on the first checked bag for the primary cardholder and up to eight guests traveling on the same itinerary (Unfortunately for consumers, Air Canada & Westjet recently increased their checked baggage fees)

The card covers the $30 fee on the first checked bag for the primary cardholder and up to eight guests traveling on the same itinerary

Further, the companion fare voucher offers great opportunity for savings.  Once a year, you can use a $99 companion fare voucher for a companion travelling on the same itinerary.  The companion fare voucher covers the roundtrip cost of airfare anywhere in Canada or the continental US (for trips to Hawaii, Mexico or Central America, the fare voucher costs $299 and for trips to and from Europe it is $399), so whoever you’re traveling with will only have to pay taxes and fees.  The companion voucher offers the greatest value if you’re flying to or from a smaller regional airport.  If your itinerary has a connecting flight (for example Prince George, BC to Vancouver and then Vancouver to Toronto), the companion voucher will cover the airfare on both legs.

I typically steer clear of credit cards with an annual fee, but I make an exception with the WJ WE MasterCard with its annual fee of $119. I’m happy to pay the annual fee though, because of the value that it provides. With a child under a year old, traveling long distances by car is not as practical as it was before being a parent. The WJ WE card provides our family with surplus value if we take two trips a year. With our extended family being in different provinces, this is all but a given. In the past ten years, Canadian airlines have begun charging baggage fees. Without a child, it was feasible to travel without a checked bag.  Now that we need a checked bag, the free checked bag pays for the annual fee itself. With it costing $30 on the departing flight, another $30 on the return flight, we save at least $60 in baggage fees each trip. When taking at least two trips a year, we’re saving a minimum $120 a year in baggage fees. On top of that, the companion fare voucher allows a 2nd traveler to book the same itinerary (within North America) for $99. Not only does this save us significant dollars on our airfare, it saves us having to drive three hours to a major airport to avoid the high cost of the connecting flight.

That being said, the WJ WE Mastercard provides us with extra value because of the regularity of our travels, because flying with just a carry-on is not feasible with a young family, and because any trip we take has at least one connection because live in a city with a smaller regional airport.  If you don’t travel regularly, typically fly with only a carry-on, or live in a city with an international airport, you may not recoup the cost of the annual fee.

Bottom line:

My annual savings on the PC MasterCard when combined with the PC Optimum program are well over $600 in free groceries (stay tuned for a post on how I generate value with the PC Optimum Rewards Program). My annual rebate cheque on the Capital One Mastercard is typically between $100-$200, depending on how much we drive and how frequently we eat out. The HT Visa saves me a minimum of $100 a year before considering any savings on foreign currency fees.  Obviously, in years that I travel abroad, the HT Visa saves me much more than in years I don’t. And lastly, the WJ WE card saves me between $100-200 a year as well.

All told, since I always pay my entire balance every month, my four credit card system saves me more than $900 a year and that is after accounting for the annual fee on the RBC WJ WE Mastercard.  That is roughly $900 that I’m able to keep in my bank account every year.  I’m able to save it, invest or spend it in whatever way I like!

Substitute cards

Let’s say, for whatever reason, the exact cards that I’m using don’t fit your spending patterns very well.  Perhaps it is inconvenient to shop at a Superstore or your live in a metropolitan city and don’t drive a car.  What alternatives can I suggest?

Let’s say that you’re not a Costco member and that the membership fee outweighs the benefits of the Capital One Card.  Or, you don’t own a car so the 2% cashback on gas is a wasted benefit. The Tangerine No-fee MasterCard is a good alternative. Like the Capital One Card, there is no annual fee and it does not require any membership. If I were to give up my Costco membership (and along with it the Capital One Card), I would likely switch to the Tangerine card.  The advantage of the Tangerine Mastercard is that you get to pick two or three 2% cashback categories, with the remainder of your purchases earning you 0.5%.  You could pick from grocery, home improvement, entertainment, hotel-motel, recurring bill payments and others (just be aware that buying groceries from Costco or Walmart won’t necessarily get you 2% back in a grocery category).  In some ways, depending on your spending patterns, the Tangerine card could generate more value than the Capital One Card. If you don’t eat out frequently enough, or don’t drive at all often enough, the ability to choose from the available categories would be an advantage.  Selecting recurring bill payments as one of your categories and getting 2% cashback on your cell phone, home internet, utility, Netflix, insurance, gym membership, and/or any subscriptions you may have, could easily be worth over $100 a year alone!

If you don’t drive, the free Roadside Assistance that is included with the HT VISA has limited to you.  However, one of the Rogers Bank Mastercards may provide More Bang 4 Your Buck.  Depending on which card you use, you get 3 or 4% cashback on purchases in foreign currencies.  After the 2.5% foreign currency conversion fee, you end up with 0.5 or 1.5% cashback on foreign currency purchases.  You also get back 2% on any Fido or Rogers services charged to the card and 1.25% or 1.75% cashback on everything else.  Cardholders can use their cashback rewards to pay for Rogers or Fido services at any point during the year using the app.  If you aren’t a Rogers or Fido customer, you can get your rewards by requesting a statement credit once per year in December.  With the relatively high cashback rates, the Rogers Bank Mastercards (specifically the World Elite) would provide tremendous value to cardholders who tend to have expenses in foreign currencies and are looking for a primary card.

I use four credit cards to maximize my rewards and reducing fees, by getting the best of four worlds.  Do you optimize your credit card use differently? Please comment below with your credit card perspectives, tips, tricks and experiences.

What you need to know about Credit Cards

If you ask around, you’re bound to come across someone who talks about how dangerous credit cards are, or how they’ve cut up all their credit cards.  For the most part, this comes from a misunderstanding of how credit cards work and how one should or shouldn’t use them.  Here’s what you need to know about credit cards so that instead of hurting you, your credit cards work for you (getting you free cash)!

Here’s what you need to know about credit cards so that instead of hurting you, your credit cards work for you (getting you free cash)!

How do credit cards work?

When you use a credit card to pay for anything, technically it isn’t you paying for it in that instant.  When the payment at the point-of-sale goes through, it’s your bank or credit card issuer that pays the merchant or retailer.  You’re really loaning money from the bank up until the end of a statement period.  Then, the bank issues you a statement adding up everything that you’ve purchased using the credit card and you’re required to pay the bank back by the due date.

There are basically two ways that using a credit card can spiral out of control.  The first is overspending.  When you’re using cash or debit, your money leaving your account or wallet after every expense.  If you’re using cash, you literally cannot spend more than you have.  The same holds true for a debit card (unless you have overdraft).  With a credit card though, your only limit is your credit limit.  (To make thing’s worse, some credit card allow you to go over the credit limit, only to charge you a fee for going over the limit.) . It could be that your credit limit is lower than the cash you have on hand to pay it off.  If it’s the opposite situation (your credit limit is higher than the amount of cash you have on hand to pay the bank back), then you’ll be stuck carrying a balance on paying interest.

The second way using a credit card can cost you a lot, is if you don’t pay your bill on time.  Whether you’re carrying a balance because you’ve unintentionally forgotten or because you’ve overspent more than you meant to, you end up paying interest.

Missing a payment once or overspending in one month isn’t going to make or break you as long as you can pay the entire balance in the very next month.  The slippery slope that it is imperative to avoid, is overspending on a luxury item that you really couldn’t afford, that then takes multiple months to pay off.  It can cost you a lot in interest when you’re carrying a balance over multiple months or even years because you end up paying interest on the part of the luxury item you weren’t able to pay, plus interest on the regular expenses you’re incurring while you’re paying it off, plus interest on the interest.  It’s a slippery slope!

Keep in mind that credit card companies and banks actually rely on you overspending or not paying your balance in full.  That’s how they make their money.

With that in mind, why would you ever consider using a credit card? 

Because there are incentives, and if you play your cards right (pun intended), it literally pays to use a credit card.  When used at their best, credit cards can provide surplus value to users by avoiding fees, earning rewards, providing other benefits on money you’d be spending anyway.  Credit card rewards can range from a vacation, merchandise, free groceries or cashback.  There’s a small selection of credit cards that can help you avoid paying foreign currency conversion fees.  While some credit cards include extra perks like travel insurance, airport lounge access, rental car discounts, or roadside assistance.

If you play your cards right, it literally pays to use a credit card. 


How do I make the most out of credit cards?

Simply being aware of how credit cards work is the important part.  Credit cards used as a source of credit can be quite expensive and dangerous. Credit cards used as a transactional tool, that is, as a means for paying for goods and services with money you already have, can provide extra value for you. Credit cards can get you More Bang for Your Buck.

Credit cards used as a source of credit can be quite expensive and dangerous. Credit cards used as a transactional tool can provide extra value for you.

At the end of the day, credit cards are tools. Think about a car, or a lighter. Depending on how they are used, they can be an effective tool for getting around or starting a campfire or fireplace. Used irresponsibly, they can be quite dangerous!

There are two keys to getting more out of credit cards without letting them cost you.  The first is to never ever carry a balance. In other words, always pay off the entire balance every month. The second is to not let having a credit card change your spending behavior. Don’t let yourself be tempted to buy something on a credit card that you wouldn’t buy if you were paying with cash or using a debit card.

There are two keys to getting more out of credit cards without letting them cost you.  Never ever carry a balance and do not let having a credit card change your spending behavior.

One trick you can use to keep yourself in control (don’t let the tail wag the dog) or to stay on top of your spending, is, on the way out of the store, transfer the exact total on your receipt from your chequing account to your credit card. Your money is gone from the chequing account so you see exactly how much you have, and you never owe anything at the end of the statement period.  The convenience of smartphone apps makes this easy.  You don’t have to wait until you can get to a computer.

One thing to know is that some credit cards are completely free, while others have an annual fee.  Though, the credit cards with the annual fees tend to have far more perks and benefits than the free credit cards, that tend to make it far easier to recoup the cost of the annual fee.  That being said, the catch to any of these credit cards is your own self-discipline.  You just have to make sure you’re only spending what you can afford.

If I don’t overspend, what kind of rewards or value can I expect?

How much do you spend in a month on gas, groceries, meals out at restaurants, coffee, your Netflix subscription, internet and cell phone bills, shopping, etc.?  Using round numbers for the sake of simple math, let’s assume you’re spending $500 a month on these items. That works out to annual spending of $6,000. With 1% cashback in rewards (which is pretty standard on a no annual fee credit card), you could be earning an extra $60 every year. Without an annual fee on the credit card, there is no catch. You’d have an extra $60 to spend, save, donate, give or do whatever you’d like with, for doing nothing except for using your credit card (and being punctual with your bill payments) instead of cash or debit.

I would describe this as a basic level of credit card use for an individual, with a basic level of rewards.  If you have a family, your regular spending is almost assuredly closer to $2,000 a month than it is to $500.  The more you spend, the more it’s worth it for you to use a credit card.  When spending $2,000 a month on a basic no-fee 1% cashback credit card, you are leaving closer to $240 on the table in rewards.

When spending $2,000 a month on a basic no-fee 1% cashback credit card, you are leaving closer to $240 on the table in rewards.

Further, the more you optimize it, the more you can earn in rewards. (My presumption is that you remain disciplined with your spending and budgeting; that you don’t spend more because you have a credit card).  Typically, I spend less than $2000 a month on my credit card, but you can read about how I use multiple credit cards targetting specific rewards and loyalty programs to generate hundreds of dollars worth of rewards and savings each year.



Why is a 2.5% MER high?

In the grand scheme of things, there’s a much bigger difference between 2.5% and 100% than there is between 2.5% and 1% or 2.5% and 0.5%. What’s the big fuss over 1%, or fractions of a percentage on an MER?

What is an MER ?

MER is the acronym for Management Expense Ratio, and is an annual fee expressed as a percentage of the total of Your investment in a fund. So, a fund with an MER of 2.5% will charge you $25 for every $1000 you have invested in it every year. A fund with an MER of 1% will charge you $10 for every $1000 you have invested each year. And, a fund with an MER of 0.25% will charge you $2.50 for every $1000 you have invested per year.

The MER is the fee that investors pay, for the management of a mutual fund or exchange-traded fund (ETF) and any of the expenses associated with running it.  This includes the cost of legal, record-keeping and accounting fees, office space, marketing, taxes, and marketing.

Continue reading Why is a 2.5% MER high?

Student Discounts That Can Save You Thousands

Going to university is typically quite expensive. Today’s costs are high enough that many post-secondary students are unable to complete their schooling without incurring some student debt. Fortunately, there are many student discounts that do not require more than a student card, student number, or a timetable.

Continue reading Student Discounts That Can Save You Thousands

Re-Evaluating University Degrees

Re-Evaluating University Degrees

An acceptance letter to a university undergraduate degree program is generally seen as the most successful conclusion to high school. I’m not trying to say that getting accepted to university is insignificant or that it isn’t a sign of success. What I’m suggesting is that it isn’t necessarily a given that every undergraduate degree is a smart investment in one’s future.

With any investment, we’re open that over time, we will see an increase in value. For a university degree to be a successful investment, graduates want to see a boost in earning potential greater than the cost of the degree, lost wages (income you could have earned instead of being in school), and value for the time spent in class and studying.

Graduates want to see a boost in earning potential greater than the cost of the degree, lost wages and value for the time spent in class and studying.


How much does it cost to go to University

According to an April 2018 article by Maclean’s, the average Canadian student spends $9,300 per year if they are living at home.  Students who move away for their undergraduate degree tend to spend more than double, spending closer to $20,000 per year.

Continue reading Re-Evaluating University Degrees

Ebates: Earn Money While You Shop!

Should You Use it?

Yes You Should!

What is  Well, it is an opportunity for you to save money. is an opportunity for you to earn extra on your online spending.

How do you earn money?

From the website, select from a list of 750 online retailers and you are redirected to the retailer’s website and do your online shopping like normal.  Then you sit and wait, typically within a day or two, and your account is credited with upwards of 1% cashback.

If you want to make your shopping even easier, you can install a browser extension called “Ebates Express” on Google Chrome, Firefox or Safari.  This automates the process and the extension will notify you of any and all cash back opportunities, without having to visit the website first.

Continue reading Ebates: Earn Money While You Shop!

Actively-managed vs. Passively-managed Investing: Which one is more effective?

Actively-managed Investing:

An actively-managed investing approach involves picking both the “winning” and “losing” stocks. The active investing approach aims to get the highest possible return, exceeding the stock markets average return by taking advantage of daily or short-term price fluctuations. An active manager is looking to buy-low and sell-high. Sounds pretty straightforward right? To be successful, one needs to identify the “winning” stocks before they are winners, so that they can be bought when their prices are still low and held as their share price rises. At the same time, one also needs to identify the “losing” stocks before they become losers, so that they can be sold before their share prices drop.  The biggest challenge with the active-investing approach is being able to determine the winners and losers before their share prices start to move.  Everyone can see when a share price is sky-rocketing.  Unfortunately, investors who start buying shares after the share price has started climbing are late to the party, have not really bought-low and miss out on a good portion of the potential gains.  Likewise, if they are holding a stock who’s share price has started to plummet.  By selling after the share price has started to fall, they’ve also sold late, and lost out on gains because they have not sold-high.

The biggest challenge with the active-investing approach is being able to determine the winners and losers before their share prices start to move.

Actively investing also involves higher costs relative to passive investing for a number of reasons. There is a much higher rate of trading, as investors seek to jettison future “loser” stocks and add “winning” stocks that are on an upswing, which leads to higher transactional costs. In addition, an active fund manager will also be employing a team of stock analysts, whose job it is to research and find the “winners” and “losers.” They all have salaries, not to mention the salary of the fund-manager him- or herself, who would have the biggest salary. After all, the fund-manager “should” be worth the big bucks, because it’s their expertise that is going to find and pick the “winners” from the rest. The claim is that their expertise is “worth” the big salary because investors will get that value back when their investments outperform the market. All these costs are bundled up together and are charged to shareholders of the fund as a percentage of their holdings through an MER. Most actively-managed mutual funds in Canada have an MER between 2 and 3%.

Passive Investing

Over a multi-decade period, the stock market grows on average 7% a year.  Of course, there are years where you could see swings of 30-40% in either direction, but over an investment lifetime of 30+ years, the average annual growth of the market is 7%.

Passive investing has a simpler approach and only aims to replicate the average 7% market returns by using index funds.  (An index fund represents a segment of the market and tries to match a benchmark which is usually an index like the S&P 500).  Passive investors aim to capture as much of the long-term growth by buying and holding their investments for the long term and ignoring the short-term gains and losses.  Further, they aim to capture as close to the 7% average growth by keeping their costs as low as possible, using index funds that are far cheaper to manage than mutual funds. They don’t require big research teams to find stocks because the index (or benchmark) determines what stocks are going to be held in an index fund; an index fund will hold exactly the same stocks as the index. Further, there are far fewer transactions too. As a result of these lower costs, the MER on index funds is typically a fraction of those found on actively-managed funds – mostly somewhere between 0.05% and 0.25%.

Passive investing has a simpler approach and only aims to replicate the average 7% market returns by using index funds.


How do I decide between the two?

Personal finance is personal, but, most of the time, for most people, a passive investment strategy is going to be the most profitable option.  Statistics show that most of the time, the returns on a passively-invested index fund will beat comparable actively-managed funds after fees.  A minority of actively-managed funds will outperform their benchmarks.  The challenge is identifying which actively-managed funds will outperform their benchmarks ahead of time and having access to the best fund-managers. Often, they are inaccessible unless you have a very high net worth.  Most of us are not able to get the best fund managers to manage our money.  In addition, for every actively-managed fund that beats its benchmark, there are many that underperform their benchmark after fees (read my post on high-MER fees for more on the effect that fees can have on investment returns).  Most investors will be better off investing in low-cost index funds.

Personal finance is personal, but, most of the time, for most people, a passive investment strategy is going to be the most profitable option.

Warren Buffet, one of the most successful investors, left instructions in his will asking his wife and her trustee to invest his estate in index funds and government bonds after his passing:

One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors…

This wasn’t the first time that Warren Buffett bet on index investing.  In 2006, Buffett wagered that the returns on an S&P500 index fund would be greater than any hedge fund over a ten-year period.  It took until July 2007 for Buffet to have a challenger, Ted Seides at Protegé Partners.  Their bet ran from 2008-2017.  Even with the financial crisis in 2008, the S&P500 Index yielded 7.1% compounded annually after fees.  The Protegé funds on the other hand, only returned 2.2% compounded annually.

How and why do low-cost index funds generally perform better than their actively-managed counterparts with higher fees?  The high costs kill returns.  The actively-managed funds need to make far more transactions.  Transactions incur costs for funds and investors, so for every transaction, a fund must perform an increment better to recover the costs of that transaction.  This doesn’t even take into account the costs of research that go into any and every transaction. This problem is compounded by the difficulty of picking the right stocks. Managers are tasked with picking stocks to buy before their prices have risen, and what stocks to sell before their prices have fallen. It’s easy enough to identify the winners after the fact, but predicting the futures is difficult.

While bitcoin is not a stock, the recent hysteria is useful for exploring the challenges faced by active-fund managers. If it were easy to predict the run-up and the subsequent fall, everyone (not just the relative few) would have bought into bitcoin when they were worth hundreds of dollars, and sold them when they hit their peak. One of the challenges is that there are two parties to every transaction. If it were easy, anyone who would have known that bitcoin would have had a monumental increase in value, would not have sold their bitcoin for hundreds of dollars knowing they would be able to sell them for $15,000. And conversely, when bitcoin was valued at $15,000, no one would have bought any knowing that they could buy them for $7-8,000 in the following months. No one can predict market fluctuations. Even the best fund managers who have a history of beating the market, aren’t able to consistently do so for the typical 30-year (or more) duration of an investment lifetime.

One of the challenges is that there are two parties to every transaction. If it were easy, anyone who would have known that bitcoin would have had a monumental increase in value, would not have sold their bitcoin for hundreds of dollars knowing they would be able to sell them for $15,000.

Passively-managed investments only aim to capture the average market returns.  However, the approach works well for investors because average market returns are actually above average!

Paytm: Rewarding you for paying your bills

What is Paytm?

Bills are a fact of life.  Whether it’s credit card bills, rent, taxes, tuition, utilities.  Life costs money, and we have to pay this bills. Paytm is a cellphone-based free bill payment platform.  Through Paytm, you can make all (or almost all) your bill payments from one place.  You can set up alerts, reminders, and notifications to help you avoid any late fees.

Paytm Home Screen

How much does it cost to use?

There are no sign-up fees and no transaction fees of any kind.  And there is no fine print! Paytm costs you absolutely nothing to use.

How does it work?

You need to add both your billers and your payment methods.  Paytm advertises as having more than 5000 billers, and you can use your bank account or credit cards to pay these bills. You can also use Paytm to send money to friends and family. This isn’t a unique function though, and essentially replicated what you can do with PayPal or Interac email money transfers.

There are two different types of account balances on Paytm that can create value for you. Paytm Cash is essentially a cash reward balance that you can use towards bill payments or towards gift card purchases. Paytm Points is a second rewards system. You accumulate 1 Paytm Point for every dollar of bills that you’ve paid through Paytm. You can then redeem the Paytm Points to boost your Paytm Cash back rebates on gift card purchases.

Continue reading Paytm: Rewarding you for paying your bills

Tangerine Review

Disclaimer: I’m a Tangerine banking client, but I am not being compensated by Tangerine for writing this review.

What do you get with Tangerine?

Everything that you need for your everyday banking needs and more. There are only a couple physical Tangerine “branches” in Canada (2 “cafés” in Toronto and one each in Vancouver, Montreal and Calgary). You would think that such a limited number of physical locations would limit Tangerine’s ability to serve their client’s banking needs, but it doesn’t. Tangerine is my primary bank and I’ve never been to a physical Tangerine location! Tangerine has saved countless dollars on the costs of building and maintaining brick-and-mortar branches, and pass on those savings to you. Tangerine offers everyday banking services without any monthly account fees. There are unlimited transactions and no minimum balances. Most major banks will charge you between $10-16 a month or require that you maintain a minimum balance in your chequing account for unlimited debit transactions, but this is free with Tangerine.

It’s close to free banking but not completely free. For example, Interac e-Transfers cost your $1 each. Tangerine charges you $40 if your account has Non-Sufficient Funds, and there is an Overdraft fee of $5.

You also get great savings rates on your deposits. Even Tangerine’s chequing accounts have noticeable and quantifiable interest rates that rival some of the interests on big bank savings accounts! Up to $50,000, Tangerine offers 0.15%, increases it up to 0.55% on every dollar from $50,000 to a $100.000 and tops out at 0.65% on every additional dollar. The standard rate on savings account deposits is 1.1%, and is significantly higher than any savings account interest rates of the big banks. Periodically, Tangerine will offer short-term promotional interest rates on new deposits into your savings accounts.  You can maximize these promotional rates by moving your savings account deposits to your chequing account at the end of a promo period, so that you’re entire balance is eligible for the higher promotional interest rate. It does make a difference, as my most recent promotional interest rate bumped me up to 2.4%.

You also get worry-free banking. Tangerine is owned by Scotiabank so there is very little risk of Tangerine failing. And even if it were to fail, you won’t lose your money because up to $100,000 of your deposits are covered by CDIC.

If you intend to have accounts at more than one bank, Tangerine offers you the ability to “link” the accounts together. This gives you the ability to not only transfer money between your different accounts at Tangerine, but also between your accounts at Tangerine and accounts at other banks (for free as well).

You get MoreBang4YourBuck with Tangerine. You have minimal if not no practically no fees to bank plus you yield far more in interest than what you can get from a big bank.

What drew me to Tangerine?

I was tired of paying monthly account fees and earning negligible interest on my deposits. Once I discovered what Tangerine offers their clients, it didn’t take much for me to open up an account with Tangerine and make it my primary every day bank account.

My experience:

From what I’ve seen, Tangerine is quite aggressive in its pursuit of new clients and retention of existing clients.  I mentioned earlier the recurring promotional interest rate boosting the yield on savings accounts from 1.1% to 2.4%. I’ve also benefitted from a referral bonus, where existing Tangerine clients and new clients they have referred both receive a bonus worth $50. The third bonus I received was a welcome bonus from Tangerine worth $100, for setting up a direct deposit. Tangerine had one more bonus for new clients that had increasing rewards for the amount new clients contributed to their investment funds.  I didn’t qualify for this bonus because I manage my investment account using Questrade.

I have been really pleased with my experience with Tangerine so far.  It seems like Tangerine has done the little things well. Tangerine seems to have compensated for the absence of physical branches, by making it a easy for their clients to be able to contact them by phone or chat. I’ve only needed to contact Tangerine a couple times, but it was really easy to set up an instant messaging chat, and the wait times to talk on the phone have been all but immediate for me. You can also contact Tangerine 24 hours a day, 7 days a week. No complaints there.

Mobile Cheque Deposit Screen

Tangerine has also created a cheque deposit system that I feel quite secure with. First off, their app is quite easy to use. After declaring the cheque balance, you take a picture of the frontside and backside of a cheque. The app can also tell you if your pictures aren’t correct (i.e. you’ve taken two pictures of the front instead of one of the front and one of the back). Within a minute, you will get an email confirmation that the cheque has been received. The email lists the cheque total, the account it will be deposited into, the date you submitted the pictures and the cheque number and asks you to keep the cheque safe until Tangerine has had an opportunity to process and clear the cheque. Then, a couple days later, you will get another email with the same information (cheque balance, account it is destined for, submission date and cheque number), along with the instruction to destroy the cheque (preferably with a shredder). I’ve found the process to be really convenient. It is so fast to use – it’s way quicker than the amount of time it takes to get to a bank and have a teller deposit your cheques the old-fashioned way. – and the email system makes my quite comfortable that it is secure.

There are a couple features that to Tangerine that I have not used yet: the Tangerine MasterCard and the Tangerine Investment Funds. The MasterCard seems to be an excellent option for people looking for a no-fee cash back credit card, giving you 2% cash back on your choice of three categories. You can choose between Groceries, Furniture, Restaurants, Hotel/Motel, Gas, Recurring Payments, Drugstore, Home improvement, Entertainment, and Public Transportation and Parking. If you’re having trouble deciding on your categories, Tangerine will suggest the best options for you to pick based off of your spending habits. The ability to pick your 2% categories (with 0.5% cash back on the rest) allows you to personalize the rewards to match the categories you spend the most on, or, makes it a good secondary credit card giving you 2% cash back on the categories you don’t get on your primary credit card.

Tangerine also offers good (though not great) investment options with their Investment Funds, which you can hold in an RRSP, TFSA or non-registered account. The investment funds are index-based mutual funds that are perfect for the investors that are looking for an easy-to-use automatic investing solution. Investors can set up preauthorized contributions to the fund they pick and Tangerine does the rest. Tangerine has 5 different funds (Balanced Income Portfolio, Balanced Portfolio, Balanced Growth Portfolio, Dividend Portfolio, and Equity Growth Portfolio) that are varied to match a range of risk tolerances and asset allocations. They range from 100% equity and no fixed income in the “Dividend Portfolio” and “Equity Growth Portfolio” to 30% equity and 70% bonds in the “Balanced Income Portfolio.” All five of these funds have an MER of 1.07%, which is quite reasonable in comparison with the typical MERs that are higher than 2% on conventional actively-managed mutual funds. I mentioned that the Tangerine funds are good but not great, because the fees are a little higher than comparable options on the market, such as WealthSimple.

There are two things that I think would really add to Tangerine. The first thing that I would like to see, is for Tangerine to offer RESP accounts. As Tangerine is one of the few banks that do not offer Interac email eTransfers for free, that would be the only other thing that I would like to see from Tangerine.

I have not been with Tangerine for years yet, it’s only been a matter of months. That being said, I’m quite happy having made the switch and wish that I had moved my banking to Tangerine sooner. But, seeing as it’s been recent, I will write a follow-up on this review after I’ve been a client for a year.

The Case for Internet Banks

Disclaimer: I’m currently a Tangerine client but I am not being compensated by Tangerine for writing this.

What does it cost you to be a client of one of the big 5 banks? What are the potential savings of banking with an internet bank?

If you bank with one of the big 5 banks (TD, Scotiabank, RBC, BMO, or CIBC), odds are you’re paying either monthly account fees between $11-16, or, you’re maintaining a minimum balance of a couple thousand dollars to have that monthly fee waived.

With the developments of internet banking and smartphone banking apps the last 5-10 years especially, it is now possible to do all of your banking without ever needing the assistance of a teller or going into the bank. Today, the only find I find myself going to the bank is if I need cash, and even then, I find myself using a bank machine instead of a teller. I am able to regularly check my account balance, transfer money, pay my bills all from my computer or phone. In the last couple years, if not the last year, mobile banking apps have added and refined a cheque deposit feature integrated with phone cameras that is, in my opinion, now functional (My recollection is that my big bank app had the mobile cheque deposit feature but that there were enough bugs in the system that I had to fight with it to the point that it was no longer convenient.  The mobile cheque deposit function seems to work great now.) With a banking app, you can deposit cheques by taking pictures of the front and back of the cheque.

With internet banking and mobile banking apps, physical brick-and-mortar branches are no longer necessary the way they were even 5 years ago, and internet banks have become a much more viable option for everyday banking. Tangerine and Simplii are the two digital banking options out there for Canadians right now that this post is focused on. Continue reading The Case for Internet Banks