Episode 272: Rob Carrick: Canadian Personal Finance in 2023

Episode Summary

Executive Summary: Rob Carrick says Canadian personal finance is splitting into two camps: households under stress from debt, rent, and housing costs, and more comfortable savers chasing safe yields. He argues asset allocation ETFs are a major breakthrough, warns that GICs and conservative cash-like products are being overused as 5% rates won’t last, and says housing affordability is as much about expectations as prices. He also highlights weak access to comprehensive advice and rising intergenerational financial support.

Main Topics: Rising financial stress vs. comfortable savers (Priority: 5/5): Carrick describes two very different reader groups: those struggling with debt, withdrawals, and cash flow, and those seeking yield without market risk. He sees stress rising, but not uniformly across Canadians. GICs and the lure of safe 5% returns (Priority: 5/5): He argues Canadians are piling too much money into GICs and high-interest products because they extrapolate current rates into the future, even though these yields are likely near a peak. Asset allocation ETFs as a breakthrough product (Priority: 5/5): Carrick strongly endorses asset allocation ETFs as a simple, effective one-decision solution for most investors, emphasizing low cost, diversification, and the importance of staying invested. ETF market maturity and product proliferation (Priority: 4/5): He contrasts the ETF market with the old mutual fund era, noting that issuers increasingly chase trends and launch niche products, even though broad low-cost core funds remain the best options. Housing expectations, affordability, and homeownership myths (Priority: 5/5): He argues Canadian housing distress is partly a mismatch between expectations and reality: many buyers want detached homes and assume continued appreciation will solve affordability problems. Intergenerational support and retirement challenges (Priority: 4/5): Carrick says parents are heavily supporting adult children financially, while some adult children are beginning to support parents. He flags retirement readiness, health costs, and the emotional adjustment to retirement as growing issues.

Key Arguments: Canadians are not all struggling; the market is splitting between financially stressed households and those with excess cash seeking safe yield. Many investors are overallocating to GICs because they mistake today’s rates for a permanent return regime. Asset allocation ETFs deserve a top score because they provide a simple, diversified, low-cost portfolio that most investors can stick with. The ETF industry is beginning to resemble the old mutual fund industry by launching attention-grabbing products rather than useful ones. The 60/40 portfolio is not dead; last year’s bond shock was exceptional, and the classic mix is still viable over long horizons. Most Canadians are not receiving comprehensive financial planning; advice is often limited to portfolio management and transactional product selling. Housing affordability is driven partly by expectations of detached-home ownership and perpetual price appreciation, not just income-to-price ratios. Rents are likely the most painful housing problem right now because renters face higher costs without building equity. Parents are helping adult children far more than many realize, and this support may be affecting retirement savings. Adult children may also need to support aging parents, creating a squeeze on both ends of the family. Retirement is not just a money problem; many retirees struggle with identity, structure, and replacing the purpose of work. Younger investors want financial home runs and are attracted to stocks, crypto, or real estate speculation before basic planning concepts.

Data Points: Asset allocation ETF assets in Canada: About $15 billion (aggregate, estimated) - Carrick’s estimate of the size of the Canadian asset allocation ETF category Alternative-bank GIC rate: 6% for an 18-month GIC - Example cited to show that high guaranteed rates are still available Typical asset allocation ETF MER: About 0.18% to 0.25% - TD’s simplified product versus Vanguard’s offering Mutual fund average MER: About 2.5% - Example from a reader’s advisor relationship involving a large advisory firm Comprehensive financial planning share: About 6% - JD Power survey figure Carrick cited for Canadians receiving comprehensive advice Homeownership rate peak: About 69% - Carrick’s reference to the Canadian homeownership rate peaking High-interest savings ETF yield: About 5.3% - Suggested parking place for a future home down payment Investment savings account yields: About 4.5% to 5% - Alternative cash-like product for down payment savings Parent support of adult children: About 92% - Carrick’s newsletter survey indicating parents provide some financial help Cash help for retirement health/dental: $5,000 to $6,000 - Rule-of-thumb estimate for annual retirement dental and medical costs Dental checkup and cleaning cost: $300 to $400 - Carrick’s example of a typical out-of-pocket retirement dental expense Bonds in 2022: -11% total return on benchmark bond index - Used to explain why 60/40 portfolios looked broken temporarily Mortgage-rate shock example: 20% mortgage rates - Carrick’s reference to early-1990s housing market stress Federal/household planning sample size: 1,000 to 6,000 replies - Newsletter survey response range he gets when asking readers questions Support for adult children: Rent help, car insurance, cell plans, groceries, down payments - Forms of financial support described in the discussion

Pivotal Quotes: "I would give them a 10 out of 10 for importance as a product introduction in the Canadian investing marketplace, maybe 10.5 out of 10." — Rob Carrick: Carrick on asset allocation ETFs and why they matter for ordinary investors "People really want good returns without risk." — Rob Carrick: Explaining the surge in interest around GICs and cash-like investments "It's all about selling. It's not an advice business." — Rob Carrick: Describing the gap between what Canadians need from advisors and what many receive

Implications: Listeners should be cautious about chasing current cash yields and house-price assumptions. Low-cost diversified ETFs remain the strongest default choice, while the biggest financial risk may be inadequate advice, housing stress, and family-level support obligations.