SMART MONEY: Let's talk about money

By Brad Brain

Let’s talk about money.

There are some people that don’t really understand money. The twist is I am not referring to people that are not financially literate. That’s a real thing, but it’s not the subject of this column.

The more interesting paradox is the people that actually spend a lot of time thinking about money. They try to learn as much as they can about all of the different options and they are endlessly seeking to find the very best product.

This group of people are financially literate, or at least they try their best. They will shop around for the best interest rate of their GIC. They will own only ETFs, because of the cost. They will have an opinion on whether TFSAs are better than RRSPs.

But some of these people are missing the big picture. Money is not some type of game where if you find a bank paying a tenth of a percent higher on a GIC then you win. There is no prize for your mutual fund beating the benchmark.

Now, what I just said will be counterintuitive for some, so let me explain. Here is the critical point. This is what you need to pay attention to.

Money products are merely tools. It’s what you build with the tools that counts.

Don’t get me wrong. Some tools are higher quality than others. And it’s easier to build cathedral if you have the best tools for the job. But if all you are doing is building outhouses, then does it really matter if you are using a titanium screwdriver? Is that not a waste of a good tool?

It’s about using the right tool for the job. It doesn’t matter how much a GIC is paying if it doesn’t fit your needs. It doesn’t matter how cheap your ETF is if it doesn’t match your risk tolerance. It doesn’t matter if your mutual fund beats the benchmark if you fail to reach your objective.

Think about it. If your mutual fund beats the benchmark, yet you can’t afford to send your kids to school, did you win? On the other hand, if you have a third quartile fund but you retire when you want with an income that you can’t outlive and you never have to worry about money, did you lose? Of course not.

But some things are easy to measure, and people like to make comparisons. This is why people will mistakenly focus on products. It’s not that products are unimportant, but we need to put first things first. If you are not focused on where you are going, then you could have phenomenal products that don’t actually work for your needs.

Put it this way. Let’s say I am walking down the street, and I see a smoking deal on designer jeans. They are so beautiful. High quality and on sale for a great price. The only thing is, they are size 28.

It doesn’t matter if these jeans are the height of fashion and it’s the sale of the century. My waist size is not 28. They don’t fit.

This is what I see in real life. People will spend time and energy rate shopping for a GIC, and yet never stopping to think if the GIC is what they actually need. Sure, GIC’s don’t fluctuate, but if all you are doing is perpetually rolling them over at maturity you may be using a short-term investment for a long-term horizon.

Why would you care about that? It’s because you are consistently locking in low interest rates and getting smoked by inflation. Very likely, there is nothing about that scenario that will help you retire with a worry-free income. It’s a mirage.

I see people blindly buying mutual funds or ETFs because they read an article online. I see people wanting to buy stocks because their buddy said it was a good idea. I see people who have pre-conceived ideas about insurance simply because they are superstitious.

To be clear, this isn’t to say that any of these ideas are intrinsically bad. But they very well could be bad for you and your particular objectives. If it doesn’t help you reach your goals, then you probably don’t need it.

So, lets put the product comparisons to the side for the moment and talk about what is really important. What is it that you want to do in your life?

Because once we know where you want to get to, the rest is relatively easy. Once you know where you need to get to you can safely ignore all the ideas that don’t move you in the right direction.

Good financial planning is not about choosing investments. It’s about choosing priorities. The investments come later.

So, what is it that you really want?

Brad Brain, CFP, R.F.P., CLU, CH.F.C., FCSI is a Certified Financial Planner in Fort St. John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.