David Jenkins is the founder of TheAnswerIs.ca Inc. which is an investment website targeted at millennials. The website focuses solely on investing for the long term, typically greater than 10 years using a model ETF portfolio. There are no fees or commissions associated with the website. Instead of paying advisor fees, users are encouraged to make a donation to charity. I was E-Introduced to David by Gordon Stein, author of Cashflow Cookbook. After exchanging a couple of emails, we met at Starbucks for coffee and we met again at the Toronto Reference Library on June 12, 2018 (Tuesday @ 1100) for this interview. The duration of the interview was 20 minutes and 7 seconds.
Urgen Kuyee: Hi Dave, why don’t you let my readers know a little bit about yourself? Which school did you go to? How did you get into personal finance?
David Jenkins: Sure. I went to The University of Western Ontario for business. After I graduated, I took a course in commercial real estate valuation. More recently, I took a Directors Education course at The University of Toronto. With respect to why I got into personal finance, I’ve just always had a very passionate interest about it. When I was very young, my mom gave me a copy of the Toronto Star business section and I was probably about 12 or 13, and I started looking at the stock tables. And then I tried to link newspaper articles back to the stock tables. It didn’t always make sense, but that’s what kind of started the process.
UK: Can you tell us more about TheAnswerIs.ca Inc and what led you to start this website?
DJ: TheAnswerIs.ca is a website targeted primarily towards young people and it provides the basic information or basic knowledge to invest, which I argue is all you really need. More importantly, the website provides the aptitude or headspace to successfully invest. Instead of paying an advisor fee, the users of the site can donate to charity.
What motivated me to start the website was after my last investment gig, my wife and three daughters were having dinner. I said to my daughters look, “I am going to write you guys notes on investing, so you don’t make all the mistakes I made when I was starting out, so that if I get hit by a bus, you will be fine.” And, my middle daughter said “Well, thanks Dad but that’s lame. I want to read this type of stuff on my phone when I want to read it, plus I can’t read your handwriting”. (Laughs) And in addition, she said her friends also needed this type of help. So, really that was the motivation to start the website. And also, it is sort of my attempt to give back. I was very fortunate as I was growing up, my father was in the Air Force, died in the line of duty. As a result, the benefits from Veterans Affairs fully paid for my university education; tuition, books and I even got paid to go to school. So, this is kind of my attempt to give back and raise some money for charity.
UK: Very cool. When did you start this website?
DJ: October 2016.
UK: What are one to three books that have greatly influenced your life?
DJ: I am a big Warren Buffett fan for a couple of reasons. Obviously, he is time-tested and successful investor. But more than that, he is a man that I think has his heart set on helping other people. He is the first to share his investment knowledge with others. He argues in favour of a broader and fairer tax base in United States. And of course, he will be leaving the largest part of his legacy of investment to charity. So, I have read a couple of his books. Other books that I have read when I was working in a senior management position would be Good to Great, a very good strategy type book. It is interesting that a big part of success in business is deciding what NOT to do. So, that’s the sort of stuff I like to read.
UK: Dave, You are a self-taught investor.
UK: You are not a Certified Financial Planner (CFP) or a Chartered Financial Analyst (CFA). On your site, you talk about how you have been a bit of an investing buff for thirty long years. NBA superstar, Lebron James says this all the time, the greatest teacher in life is experience. What are some of the investing mistakes you have made in your earlier years or when you were younger?
DJ: (Laughs) Well, I made all kinds of mistakes. I guess the biggest thing is when as I mentioned earlier, I had a modest sort of upbringing. So, when I started to work, I was VERY motivated by money and I wanted more of it! When I managed to make an extra five hundred dollars or a thousand dollars, I went straight to the markets. I was swinging for the fences. I wanted the Home Run, that big return. We didn’t have bitcoin back then but if we did I would have bought it. I was caught up, and I tried everything; warrants, futures, and penny stocks was the other big one. I loved that feeling of when you buy a thousand dollars at ten cents a share, you get 10,000 shares. The trouble is my 10,000 shares turned into two hundred fifty dollars quickly. So, I guess what I really learned was that swinging for the fences wasn’t working for me. If I did get lucky on occasion, my other bets would work against me. When you don’t have much money, to lose money hurts. And, so I gradually just converted. I’m just going to do this slow and steady like people are telling me to, and really that that made a significant difference.
UK: On that note, do you mind sharing how do you invest your money and what’s in your portfolio today?
DJ: Sure. On the website, theansweris.ca, after someone takes the “Ready to Invest” quiz, they can Register as a User, which opens the back half of the website. On the back half of the website, there is a model portfolio that comprises six specific ETFs or exchange traded funds, and that model portfolio gives you not only geographic diversification, but more importantly, gives you economic sector diversification. So, I obviously have a large chunk of my money in that exact portfolio. All my kids use that portfolio. In addition to that, I also hold a portfolio of blue chip, dividend paying stocks. The reason I hold those in addition to theansweris.ca portfolio is they pay a higher dividend yield. I live off the income of my portfolio today.
UK: How were you able to convince your daughters to start their own portfolios? I ask because most of my readers are millennials like your daughters.
DJ: We did talk about investing quite a bit over the dinner table as boring as that sounds. (Laughs) Two of my daughters are graduated and they are working. So, they have been able to start to save money. My youngest daughter is probably the best saver of the three even though she’s still in university. She has put together a little bit of money to invest. As I mentioned previously, if I get hit by a bus, I want them to be able to survive on their own. So, I encourage them to go into an ETF portfolio because although picking individual stocks is doable, you need to do a lot of research, and they did not want to spend that time or have the inclination really to do that. So, I thought an ETF portfolio is probably the safest long-term bet for them, and that’s kind of the direction I steered them, and they picked it up.
UK: What kind of platform do they use to invest? Do they use Questrade or one of the big banks?
(Hi, Urgen here. Quick time out. If you haven’t and do plan to open an account with Questrade, you can use my QPass key 686206863418541 so both of us benefit i.e. both of us will get cash bonus.There’s no shame in asking for help especially when it helps both parties.)
DJ: It’s a good question. All three of them use the bank that I introduced them to. I am not saying that because that’s the only thing or the correct thing to do because quite frankly, you just mentioned Questrade, it is a low-cost option. If you are going to trade ETFs, it’s not an enormous difference between the Banks and Questrade other than Questrade offers commission-free ETF purchases. So, you save ten dollars a trade, but you are not trading that often with TheAnswerIs.ca model portfolio. So, is it a great option? Yes, it is. Is it the key to determine success? No, it’s not. You should go wherever you’re most comfortable. One of the reasons I use the Bank platform is that they have tools on their website to help you analyze how you are spending your money, which helps you identify where you can save some money to invest.
UK: Let’s say a 27-year-old nurse, she makes about 65K/year and wants to save about 10 percent yearly for her retirement. Would you tell her to go with a TFSA or an RRSP?
DJ: Let’s assume that he or she has no other income. There are two schools of thought here. I would say TFSA is the answer for the vast majority of the people because it’s obviously 100% tax-free. And so, any dividends, interest or capital gains are 100% tax-free while the money is inside the TFSA, and you can take it out tax-free. It is long time for a 27-year old to think about, but when he or she turns 65, and starts taking out that money, it does not impact their Old Age Security (OAS), whereas an RRSP may well impact it. So, that’s one reason why I lean towards TFSA. I kind of suggest that people fill up their TFSA first, RRSP second, and non-registered account third. The one advantage that RRSPs have over TFSAs, is that it feels more locked up and it’s a little harder to take the money out. So, that just might be the barrier that people need not to dip into it. So, that is an advantage. But, overall for a young person making $50,000 to $100,000 sort of income range, I would start off with TFSA and then RRSP.
UK: What are bad recommendations you hear about personal finance and investing in Canada? What advice should Canadians ignore?
DJ: There are three major errors that people make. The biggest mistake I think people make is investing in Series “A” mutual funds from the banks, mutual fund companies and life insurance companies. The reason is because many of those mutual funds carry Management Expense Ratio (MERs) of on average around 2.3%, and that is 10 times more expensive than a typical ETF expense ratio. And, 2% does not sound like very much, but 2% over a long-term investment horizon can cut your final portfolio value by 50%! Horrifying! So, that is an easy mistake to avoid.
The second bad recommendation is that financial institutions will talk about volatility, you know your portfolio might go down, but they do NOT talk about the cost associated with preventing that volatility. So, they encourage you to have a large proportion of your portfolio in in fixed income; i.e. bonds, and GICs. And if you need your money within the next 5 or 10 years, or are really uneasy about watching your portfolio going up and down, I concur that’s good advice.
But, the cost of playing it safe is extraordinarily high. If you go from 100% equity portfolio, which admittedly is very aggressive, and replace that with a portfolio of 50% equity and 50% fixed income, your average expected return is going to decline by at least 2% per year. So, instead of getting 6 or 7%, you are going to get 4 or 5%. Well, again that 2% difference over the long term will cut your portfolio value in half. So, there is a HUGE cost of playing it too safe, too early. I would suggest if you can handle it, use equities. Equities should only be used for money that you are not going to touch for minimum 10 years, preferably longer. Having a substantial proportion of equities at the start, and as you get 10 years away from retirement, or 5 years away from retirement, you can begin to increase the fixed income part of your portfolio to 30% or 50%, or whatever you are comfortable with. That way you play the equity ride while you are young, and you clip that extra two points along the way. That will help you end up with 50% more money in the long run.
The third mistake I would say, and we have sort of touched on it already, is that people trade too much. It’s trying too hard. Investment behaviours cause a lot of people to lose the majority of the return potential of their portfolio. Try too much, going for the Home Run, picking last year’s high performing mutual fund, listening to a tip from a friend, are “behavioural errors”. They can cost you at least 2% and some studies say up to 6% of your return. We know already from the two prior examples, a 2% reduction can be extraordinarily punishing to long-term returns. So, those are the BIG THREE mistakes. Mutual funds are number one, playing it safe too early is number two, and number three is just trying too hard and trading too much.
UK: Awesome. This is a personal question but it might help my readers as well. For someone like me who started investing in 2010, never really experienced a huge crash or a bear market. What advice would you give to a young investor going through a bear market?
DJ: Great question. I would say this, I really don’t know if the stock market is going up or down in the next day, month, year. I honestly do not know. The only guarantee I can give you is that we will see a 20 to 50% drop in the market at some point in time. And these types of drops are very normal, and 100% to be expected. The market will drop 20% to 50% at several points over the next 20, 30, 40 years. One of the lead articles on the homepage of the answeris.ca is called How does an investor survive a Bear Market Attack. It goes through some mental exercises in relation to what a young person can do in advance of a bear market to prep themselves for this eventual attack. Because as I said, the only thing I can guarantee is we will have a bear market attack and the stock market will drop 20 – 50% at some point. And, what determines whether you will be successful investor or not in the long run, is how you cope with that.
UK: Any departing thoughts?
DJ: Well, I think what you’re doing Urgen is exactly what young people need to do. You have some passion on the topic of finance. You are reaching out to people, you are sharing the knowledge. I am only one person of many you are going to interview, but the value you’re bringing to your readers is that they can pick and choose the lessons they want to learn from all the people you are speaking to. So, you are acting as an important conduit to help people raise their financial literacy and to gain some knowledge they probably otherwise would not have. So, I commend the work you are doing.
UK: Thank you Dave. Where can people find you?
DJ: Well, the website is www.theansweris.ca My email address is firstname.lastname@example.org and I am available for speaking engagements. I do them for free. I am happy to speak at universities, businesses, schools, community groups, whatever the case might be, to share strategies and philosophies to help people become successful investors, and hopefully raise a bit of money for charity at the same time.
UK: Great. Thank you Dave for your time.
DJ: Thank you Urgen. Appreciate it.
This interview has been edited and condensed.