Hey team, thoughts for today:

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I've been noticing a trend in the comments on my Instagram and TikTok when I post videos about how to make your kids really rich.

If you start early, with small amounts, and stay consistent over time, they will almost certainly be millionaires. So long as you don't mess it up while they're underage, and they don't mess it up when they take over the reigns. If you mess it up, that's on you. If they mess it up when they take over, that's partly on you, because you didn't teach them well enough, but mostly on them because they are adults then too.

So the question I'm getting most is how to start and what accounts to use. Nothing really to do with what stocks or sectors or how to outperform the market. This is encouraging. Parents are looking for a system, not a get rich quick investment.

To preface, a lot of parents subscribe and many have young children, like me, or are about to. Many also have 10, 12, and 15 yr olds and admit they started late, having been living paycheque to paycheque, spending every dollar of their raise and then some, this leads to credit card debt and other debts. But for one reason or another, they’ve realized they need to make a shift, change their actions, and start investing to make a difference for their future and their children's futures. The importance of time becomes more and more visceral.

So here's what I would do, whether you have kids who are just born, not born yet, or you have young adolescent teenagers. It's all essentially the same process.

Download Wealthsimple, or whatever broker you choose. I recommend Wealthsimple. You can do this straight from your phone. It's very easy, takes five minutes to set up, and it links to your bank account in no time, so you can start transferring money out of your chequing and savings accounts that pay virtually nothing, and start earning real stock market returns.

Once you download Wealthsimple, you'll be prompted to open various accounts. It depends on each person's situation, but here's how I'd prioritize.

I would focus primarily on the TFSA. If you've never invested in a TFSA before and you've been 18 since 2008, you can contribute $109,000 as of today, and you can do this for you and your spouse. That means $218,000 between you, plus ongoing contributions of $7,000 each per year.

It is very important to max this account. It is the most powerful wealth creation tool known to Canadians, hands down. Please don't argue with me. $7,000 per year at 10% for 40 years equals $3.4 million. If you are in the advantageous position to start with $218,000 and contribute $14,000/yr, after 40 years that’s $16 million. If you are a parent with adult children and want to give with a warm hand instead of a cold one, consider gifting your kids enough to max fund their TFSA accounts if they are struggling to do so.

Whether or not you can max fund it, you need to be contributing as much as you can to this account every week, every month, every year.

Tax free means tax free. No tax on capital gains, interest, or dividends. No tax when you pull it out. You can take it out and give the money to your kids tax free. And when you die, the money is tax free for your beneficiaries.

If you're a person who has fully maxed on the TFSA, then you can consider the FHSA. the First Home Savings Account. This only applies to people who have not owned a home before in Canada and want to.

It's a great way to save up for a down payment. You get the benefits of tax free growth, you get a tax deduction on the contributions, and you get tax free use of the money when you pull it out to buy a home.

You can put in $8,000 per year, up to $40,000 in your lifetime. So if you and your spouse both qualify, that's $80,000 between you.

The catch is that if you don't buy a home with that money, you then have to transfer it over to your RRSP.

If you work for a company that does RRSP matching, you should be contributing up to the amount they'll match you dollar for dollar. If they match $5,000, you should put in $5,000, because that is a 100% return on your money. Who wouldn't do that?

If you're a high earner in a high tax bracket, you and your spouse can consider contributing to RRSPs to lower your tax rate, but this assumes you'll be in a lower tax bracket in retirement. If you're already a realtively wealthy person, it is sometimes not advisable to grow your RRSP too large, because you'll be in a punitively high tax bracket when you retire anyway and are forced to withdraw funds when you turn 71. And every time you withdraw from this structure, you get taxed as ordinary income. So it’s important to make a reasonable assumption of your future income and tax rates.

If you have a goal for kids university, consider the RESP, which is specifically designed for post secondary education, including some trade schools.

The benefit is that the government matches 20% of what you put in, up to $500 per year and $7,200 per child over their lifetime. Put in $2,500 a year and you get the full $500. It is free money, and it is an instant 20% return before the market does anything at all.

The money grows within the RESP tax free, and when the kid starts to withdraw to pay for school, it gets taxed in their name. But this is minimal, because they're going to be 18, 19, 20 years old earning very little money anyway, so their tax rate will be very, very low. Almost not a consideration.

If you are an incorporated individual, hopefully you’ve done so because your corporation earns more than you need to spend. It’s really only an advantage to incorporate (ie a therapist, consultant, contractor, doctor, etc) and benefit from the low small business tax rate of roughly 11-12% on profits up to $500,000/year, so long as you don’t pull out all your money to live.

Whether you dividend (lower tax, but no future CPP benefit, no RRSP room, and harder for lenders to lend to you) or draw a personal salary (higher tax and cpp expense but with the future CPP benefit, RRSP room, and easier for lenders to lend), once you pull money out of the corp into your personal hands, you will get taxed again. Because of what’s called “integration”, you end up getting taxed basically the same amount as if you were a salaried employee anyway.

However, assuming you’ve incorporated for the right reasons, only drawing what you need and building up larger and larger cash balances that don’t need to be spent, you should invest these dollars into a corporate non-registered investment account.

And because interest income is taxed at punitive rates inside corporations, and because passive investment income above $50,000 in a year starts clawing back your access to that small business rate ($5 for every $1 over, gone entirely at $150,000), you should predominantly be focused on capital gain investments and avoid the bonds and HISA ETFs. Broad equity ETFs like VEQT get you most of the way there, though be aware they still distribute some taxable income each year.

The benefit for the capital gains tilt is the capital dividend account: the non-taxable half of every realized gain (and the inclusion rate is still 50%) can be paid out to you personally, tax free.

To incorporate at the end of the day is all about deferring taxes and using the advantage of that tax deferral to invest more money today and compound it into multiples of your money for tomorrow. My opinion is there’s no real sense drawing money out of your corp just to allocate to an RRSP, though others may disagree.

I am certainly supportive of drawing the extra $7,000 annually to put into your TFSA.

So you've got the account(s) set up. Now you need to start actually buying stocks or ETFs, because you can't just leave cash sitting in the account. You'll earn nothing if you do that.

Some high-quality ETFs I recommend:

VEQT — an all in one global market ETF, partly United States, partly Canada, partly international stocks. Expect long term returns of 8-12% (5 year return is currently 14.5%).

VFV - a great way for Canadians to access the S&P 500, which historically averages between 9% and 11% compounded over time (5 year return is currently 16%)

HISA - for your liquidity pool, or the cash balance you want for emergencies. It pays a nominal interest rate of around 2% to 2.5%, but it's better than your bank savings account, it’s secure, and it's highly liquid. You can sell it in a day and access the cash tomorrow.

The key is to be consistent. Contribute every month. Always buy the ETFs every month, regardless of the headlines.

There will be some years where the stock markets are crashing. But there will be far more years where the stock markets are roaring. Over time, the markets go up; this is because of entrepreneurs who create products, services, and companies that ultimately deliver value to customers and profit to shareholders. ETFs are the best, most efficient way to access that and become a shareholder and participant in the capitalist engine that is corporate America.

And don't think of 10% as a small return. It might seem like a little number, but over time it makes a huge difference. 10% compounded for 40 years is about 45x your money. And that's just on the first contribution. We're assuming you're going to contribute on an ongoing basis, and more as you grow your income, too, so each dollar you add keeps growing and compounding and helps the whole pile grow.

If you do this for a very long time, you will be wealthy, and so will your children.

The biggest challenge I see for most people is spending too much. It's hard for me to help you with that other than mindset through this newsletter… it’s really up to you, emotionally, to keep a lid on what you're spending. It’s not just the small subscriptions and starbucks - yes they add up - but rather buying or renting ‘too much house’, buying expensive transportation machines that get you to the same place at the same time (we have speed limits), and travel. Those three line items are absoultely massive. Think thrice before making those major committments.

The second biggest challenge is falling into a gambling trap instead of investing consistently. Try not to be a day trader. Try not to follow hype trends and recommendations to get rich overnight. Trying to get rich overnight comes with so much risk, you're probably going to lose your shirt in the process.

The third biggest is getting bogged down by the minutia of the accounts and how to optimize taxes. Important, sure, but the first two are way, way, way more important.

For most getting started, get the darn TFSAs going, learn, and make adjustments from there.

PS. The simply investing masterclass helps people learn how to invest. Check it out.

A good chart sent by a reader:

“Conventional wisdom says stocks have historically outpaced lower-risk assets over time. Arizona State University finance professor Hendrik Bessembinder found this isn’t quite correct. Going back to 1926, his research shows only 41% of US stock listings outperformed Treasury bills over their lifetimes. Just 46 stocks accounted for half of all the wealth the “stock market” created in the last century.”

Quite the interesting chart. As the article says, it means picking the right stocks is ever so important.

Since we know how challenging it is to be a bonafide stock picker, this chart reinforces the benefit of using ETFs; and best to let Darwin do the selection for you. He does a pretty good job.

We are here, aren’t we?

“The longer I live, the more I realize the impact of attitude on life. Attitude, to me, is more important than facts. It is more important than the past, than education, than money, than circumstances, than failures, than successes, than what other people think, say or do. It is more important than appearance, giftedness or skill. It will make or break a company... a church... a home. The remarkable thing is we have a choice every day regarding the attitude we embrace for that day. We cannot change our past... we cannot change the fact that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play the one string we have, and that is our attitude... I am convinced that life is 10% what happens to me and 90% how I react to it.

And so it is with you... we are in charge of our Attitudes”

—Charles Swindoll.

What is your life philosophy?

Me: sit back, relax, and enjoy the ride 😎

Learn to do it yourself Simply Investing Masterclass: what to actually buy, which accounts to open, and how to put it all on autopilot so your money grows without you babysitting it. Built for beginners, and the ~100 people who've gone through it have loved it. It's $200, a rounding error against what getting this right is worth over a lifetime.

For your kids SmartMoneyKids an AI-powered financial literacy app for Canadian kids ages 6 to 18. TFSA, FHSA, saving, investing, business, in language they understand.

For your specific situation wrestling with something particular? Let's talk it through → Book a 1-on-1 call

Just getting started? The simplest first move is opening a brokerage account. Wealthsimple is what I use, and you'll get $50 with code PRGS3Q.