All posts by Financial Independence Hub

What Canadians need to know about Trump’s Big Beautiful Bill

Posted By |

BDO Canada’s Jason Ubeika was a guest on Darren Coleman’s Two Way Traffic podcast to discuss Trump’s Big Beautiful Bill.

Image posted on X’s White House Account

By Jason Ubeika, BDO Canada LLP

Special to Financial Independence Hub

U.S. President Donald Trump signed the One Big Beautiful Bill Act into law on July 4. It involves a staggering US$4.5 trillion in tax cuts over the next decade and focuses on his tax agenda: the idea being to boost jobs, incentives and business investments south of the border.

The bill extends legislative changes from Trump’s first term and introduces some new provisions that offer both favorable and unfavourable changes for individual taxpayers.  Key provisions that could impact Canadians are:

  • permanent increase to the estate and gift tax exemption;
  • changes to controlled foreign corporation rules;
  • a new 1% excise tax on remittance transfers to persons outside the U.S.;
  • introduction of Trump accounts for savings for qualifying children; and
  • various changes to income tax rates, deductions and credits.

Thankfully, the originally proposed new Section 899 was removed from the final version of the bill. It would have imposed retaliatory U.S. taxes on residents of countries imposing “unfair foreign taxes,” and could have raised U.S. withholding taxes and income taxes on a variety of types of U.S. source income received by Canadians.

Estate and gift tax exemption

The bill will increase the harmonized estate tax exemption and lifetime gift tax exemption amount for U.S. citizens and resident aliens to US $15 million in 2026, indexed annually to inflation. Unlike past legislation, there is no “sunset clause” where the legislation is scheduled to expire on a certain date and the exemption reverts to the previously legislated amount. The current harmonized exemption for 2025 is just under US$14 million and was supposed to decrease by half in 2026 to slightly over US$7 million.

What are the implications for Canadians? Canadians are generally subject to U.S. estate tax upon death, based on the fair market value of U.S. situs assets; this includes U.S. real estate and shares of U.S. corporations held at death: even U.S. marketable securities held in a Canadian brokerage account. However, Canadian residents have access to the same estate tax exemption as U.S. individuals by virtue of the Canada-U.S. tax treaty. As a result, Canadians are generally not subject to U.S. estate tax on death if their worldwide net worth is below the exemption amount in effect at the time of death. The exemption is effectively at least doubled if assets pass to a surviving U.S. noncitizen spouse. No sunset clause means Canadians will face less uncertainty with respect to U.S. estate tax planning.

Canadians are generally subject to U.S. gift tax based on the fair market value of tangible U.S. situs assets (e.g. U.S. real estate) that they gift during their lifetime. Unlike for estate tax, the treaty does not provide an enhanced gift tax exemption, and annual exemptions under U.S. domestic tax law are limited. For 2025, the annual taxable gift exclusion is US$19,000 per recipient (US$190,000  for gifts to a U.S. noncitizen spouse). Gifts above these annual exclusion amounts are subject to gift tax at graduated rates ranging from 18% to 40%.

Controlled foreign corporation (CFC) rules

A CFC is generally a non-U.S. corporation where more than 50% of the stock (based on aggregate voting power or value) is owned by U.S. shareholders. A U.S. shareholder is a U.S. taxpayer who owns shares representing at least 10% of the votes or value of all stock of the corporation. Such shares can be owned directly or indirectly: even constructively, based on shares owned by certain related parties.

Under the bill, U.S. shareholders of CFCs became subject to tax on global intangible low-taxed income (GILTI) in 2018, even if the income was not distributed to the U.S. shareholder. Conceptually, this represents the after-tax active business income of a CFC. The bill renames GILTI as net CFC tested income (NCTI). Prior to the bill, U.S. shareholders of CFCs were only subject to accrual-based taxation of subpart F income, which conceptually represents non-business income of a CFC.

As for favourable and unfavorable changes to the NCTI calculations, effective in 2026, the bill:

  • repeals the reduction of NCTI for the deemed return on qualified business asset investment,
  • reduces the Section 250 deduction from 50% of NCTI to 40%,
  • limits foreign tax credits to 10% of NCTI instead of 20%,
  • limits expenses allocable to NCTI to the section 250 deduction and directly allocable expenses, and
  • renders interest expenses and research and experimentation expenses not allocable to foreign-source NCTI.

Other changes to the CFC rules include:

  • permanent extension of the look-through rule for CFCs, where dividends, interest, rents and royalties received or accrued from another CFC are not taxed under the subpart F rules;
  • modifying pro rata share rules for subpart F income to apply to U.S. shareholders owning the CFC at any point during the year, rather than at the end of the year;
  • restoring the limitation on downward attribution of stock ownership; and
  • introducing Section 951B to apply the NCTI and subpart F rules beyond U.S. shareholders of CFCs, such that they apply to structures including foreign controlled U.S. shareholders and foreign controlled foreign corporations.

Implications for Canadians

What then are the implications for Canadians? The CFC rules apply to Canadian residents who are U.S. persons (i.e. U.S. citizens or Green Card holders) and who directly, indirectly or constructively own shares representing more than 50% of the total votes or value of Canadian private companies and other non-U.S. private companies.

The net effect of the changes to the Section 250 deduction and the foreign tax credit limitation are that the minimum effective foreign corporate tax rate necessary to be paid by a CFC to fully offset U.S. tax on NCTI increases from 13.125% to 14% for a U.S. corporate shareholder of a CFC, which is taxed at 21%. A U.S. individual shareholder can make an election under Section 962 to be taxed as a U.S. corporation for the purposes of the CFC rules. For Canadian CFCs generating NCTI, the Canadian corporate tax may not meet this threshold, particularly if the small business deduction is claimed.

Excise tax on remittance transfers

Effective in 2026, the bill requires that a new 1% excise tax on certain remittance transfers be collected by the remittance transfer provider and paid quarterly to the U.S. Treasury. The tax imposed will apply only to any remittance transfer for which the sender provides cash, a money order, a cashier’s check, or any other similar physical instrument through a remittance transfer provider to an account outside the U.S. Continue Reading…

7 top 401(k) mistakes Beginners make: and how to avoid them

Posted By |
Image by Freepik

By Donnell Stidhum 

Special to Financial Independence Hub

You may think that saving towards retirement is something that can be put off in the future, but as a matter of fact, what happens (or fails to happen) to your savings during your early working years could spell the difference between your retirement savings and failed retirement savings.

One of the most effective tools out there is the 401(k). However, with power, people have responsibility, and regrettably there are a lot of mistakes that are made by beginners that are entirely unnecessary to make. And in the long run it can cost very dearly.

Here are some of the most common 401(k) mistakes beginners make: and how to avoid them.

1.) Not Contributing early enough

It is common and pitiful that most young professionals do not put money into their 401(k) in the belief that they would start the following year when they would have more income and fewer bills. However the greatest benefit of a 401(k) is compounding as you go and the sooner the better.

How to avoid it: Add money to your 401(k) as soon as you can as much as possible (even if it is just 3 per cent of your income). Slowly adding to your payments can change a tremendous amount with time.

2.) Missing out on Employer Match

If your employer offers to match a percentage of your contributions, that’s free money: but many beginners either don’t contribute enough to get the full match or miss it entirely.

How to avoid it: At least contribute sufficient to allow the employer to give full match. E.g. say your company is matching 50% of the first 6% you put in, then you should at least be putting in 6% yourself.

3.) Being unaware of different types of 401(k) accounts

Some 401(k) plans are not equal. Not all beginners are aware that there are various types of 401(k) and most people are not aware that there are different types of 401(k) most popular being Traditional and Roth 401(k)s and that they are quite different in their tax advantages.

  • A Traditional 401(k) lowers your taxes now, but you will pay taxes in retirement when you retire.
  • A Roth 401(k) is a contribution with after-tax money, which means that money can be taken out at retirement without incurring a tax.

How to avoid it: Educate yourself on the various characteristics of both Traditional and Roth 401(k). A Roth 401(k) may be more sensible to invest in currently, should you anticipate moving to a higher bracket as you get older. Continue Reading…

The five worst investments we’ve owned

Posted By |
Tawcan/unsplash

By Bob Lai, Tawcan

Special to Financial Independence Hub

I started investing in mutual funds and stocks shortly after entering the workforce. Back then, I didn’t really know what I was doing, so I followed many “ investment hot tips.” Over time, I made a lot of investment mistakes and encountered my fair share of failures.

When it comes to investing, there’s no such thing as a “perfect” investor. Making mistakes is part of an investor’s life. Mistakes are simply unavoidable. So be careful when someone claims to be an investing guru and declares that he or she has never made any investment mistakes!

Even if you look at professional sports, there’s no such thing as a 100% batting average, a 100% passing completion rate, or a 100% 3-point percentage. Being “100%” is simply not possible.

In case you’re wondering, in baseball, a batting average of 0.300 or higher is generally considered excellent; in hockey, a shooting percentage above 15% (number of goals scored divided by number of shots taken and multiplied by 100) or higher is considered excellent; in football, a 70% or higher completion percentage is considered excellent; in basketball, a 40% or higher 3-point percentage is consider excellent.

There are two key things in investing:

  1. Limit mistakes and failures
  2. Maximize winners

That’s why legendary investors like Warren Buffett, Charlie Munger, Mohnish Pabrai, Bill Ackman, and John Templeton all have made millions but still have had their shares of mistakes.

Since I started investing as a young adult, then started our Financial Independence journey in 2011, Mrs. T and I have built our investment portfolio from almost nothing to over seven figures. Over that time, we have made mistakes, which I have shared a few times on here. 

Looking at these mistakes posts I wrote, I thought they were too general. So, I thought it would be interesting to share more specifics and details.

Here are the five worst investments we’ve owned.

Note: I went through our historical investment transactions for this post. I couldn’t help but laugh at some of these bad investments.

1.) HNU – BetaPro Natural Gas Leveraged Daily Bull

HNU is a leveraged ETF from Global X. It aims to provide investors up to double the exposure to the daily performance of the BetaPro Natural Gas Rolling Futures Index. The idea is to provide investors the opportunity to benefit from daily price increases in natural gas.

I was trading HNU between 2009 and 2011. The basic idea is to trade often and try to take advantage of the 2x leverage exposure from this ETF.

There were a few things stacked up against me:

  • Futures trading is extremely complicated. I had no clue how the natural gas index would perform over time.
  • I had a very simplistic view when it came to natural gas price – price would go up in winter and price would go down in summer, simply due to demand
  • There was no such thing as free trades back then, so I was paying $4.95 (Questrade) per transaction
  • The natural gas index was highly unpredictable (at least to me)
Natural gas index from 2008 to 2012

Natural gas index from 2008 to 2012

Initially, I had some small successes, making between 10% to 40% gains with my trades. That was the proverbial ‘kiss of death’ as I thought making money was easy!

Because of the 2x bull nature of the ETF, things turned ugly in early 2011 when the natural gas price went into a free fall. The 2x bull thing worked against me and meant I was losing money fast! Twice as fast as “normal.”

I learned my lesson and got out of the silly leveraged ETF trading practice and never got back into it.

2.) Just Energy (JE.TO)

When we first started dividend growth investing, we knew very little about the key stock metrics like the P/E ratio and the payout ratio. We were simply focused on dividend yield (such a rookie mistake!)

Naturally, we went to an online stock tool and ranked Canadian dividend stocks by dividend yield. Just Energy was a stock with one of the highest yields, so we sank a few thousand dollars into Just Energy.

We spent very little research on the money and knew nothing about how Just Energy operated and how they were making money. All we knew was that Just Energy was a Canadian-based electricity and natural gas retailer operating in North America.

Note: That’s why you should take a look at the Best Canadian Dividend Stocks list.

Like HNU, the stock performed alright initially and we were happy collecting dividends (JE was mentioned in many of our monthly dividend reports early on).

Eventually JE stock price went into a tailspin and we closed out the position in mid-2014, losing about $1,500 or about 47% of our initial investment (yes, we collected about $520 in dividends, but half of that was reinvested for more shares).

In case you’re wondering, I googled Just Energy out of curiosity and this is what I found:

  • On December 15, 2022, the company announced it would be delisted from the NEX board of the TSX Venture Exchange
  • The company’s shares now trade on the Over-the-Counter (OTC) market, typically with lower liquidity and potentially higher volatility compared to the TSX

Ouch!

3.) Laurentian Bank (LB.TO)

For a long time, we owned the Big Six Banks in Canada – Royal Bank, TD, Bank of Montreal, Bank of Nova Scotia, CIBC, and National Bank. Since we have done quite well with all six of these positions, I thought it would be a good idea to continue investing in Canadian banks.

Laurentian Bank was enticing because it had a solid dividend growth history and a good initial yield. We filtered LB.TO as one of the potential stocks to purchase after going through the Canadian Dividend All Star list.

Below is what I wrote about Laurentian Bank in my 2018 dividend consideration:

“Laurentian Bank has seen its share price retreating over the last little while. At a PE ratio of 9.9, it is one of the cheapest Canadian banks available from a PE ratio evaluation point of view. With a 10-year dividend payout increase streak and a 10-year dividend growth rate of 7.8%, LB has a solid dividend track record.

LB certainly isn’t as big as the big 5 Canadian banks, with most of its branches in eastern Canada. So from a future growth point of view, LB may not grow as quickly compared to its Canadian peers.

One of the concerns with Laurentian Bank is that it has high exposure to residential mortgages. In the fourth-quarter earnings, LB disclosed that an internal audit found some documentation issues on some mortgages it had sold to a third-party company. As a result, the bank has decided to buy back $392 million of problematic mortgages from the third-party.

Having said all that, I think at the current share price, it may make sense to purchase some shares of LB, collect dividend income, and see what the future holds.

Furthermore, it also makes sense to expand our banking exposure to outside of the Canadian big 6. Laurentian Bank of Canada is relatively small compared to the Canadian Big 6. If LB manages to grow outside of eastern Canada and possibly internationally in the future, the earnings will go up.”

The problem with Laurentian Bank? The share price started to slide shortly after we initiated the position and the share price never went back up to $46, our cost basis.

LB stock performance
LB stock performance

Looking back, my mistakes with the LB.TO purchase were:

  • I pointed out the following in my original statement – “Laurentian Bank isn’t as big as the big 5 Canadian banks,” “LB may not grow as quickly compared to its Canadian peers,” and “LB has a high exposure to residential mortgages.” Well, they all turned out to be true
  • I failed to look at the big picture. A bank that was concentrated in Quebec had significant limitations in terms of growth

Laurentian Bank tried to sell itself over the past few years but there was no buyer. None of the Big Six Banks wanted to touch LB. That itself is a tell-tale sign of the state of the Laurentian Bank’s business!

4.) HND – Betapro Natural Gas Inverse Leverage Daily Bear

Since I wrote about HNU earlier, I had to mention HND, GlobalX’s Betapro Natural Gas Inverse Leveraged Daily Bear ETF, to keep myself accountable.

HND is like HNU but works in reverse. HND aims to give investors up to double the inverse exposure to the daily performance of the Betapro Natural Gas Rolling Future Index, providing a strategic opportunity to potentially benefit from price declines in natural gas.

I started buying HND as a way to protect myself from the daily movements of the natural gas index. The idea is to buy some HNU and HND and come out positive in the end.

Since I couldn’t accurately predict which way the natural gas index would go, I was betting blind. That was a very stupid strategy!

In reality, things didn’t work that way. I was getting a double whammy from both HND and HNU!

5.)  Algonquin Power & Utilities Corp (AQN.TO)

I can’t mention the five worst investments we’ve owned without mentioning AQN.

AQN used to be one of the darlings in the Canadian dividend growth investor community. The company had solid renewable energy assets, good revenues, an attractive yield, and a solid dividend growth record.

Due to poor company decisions, excessive spending, and weak mismanagement, the stock price went into a death spiral. The company sold some assets to try to stabilize its books rather than cutting dividends. When that didn’t work out, the company eventually cut its dividends a couple of times, but it was a little too late. The stock price went from a high of $20 to below $8.

We closed AQN in November 2023 and ended up with a loss of 40%, not including dividends.

This was a very humbling learning mistake and one of the worst investments we have owned.

Summary – The five worst investments we’ve owned

There you have it, the five worst investments we’ve owned. I had a few laughs at myself looking back at these terrible investments and wondering what the heck I was thinking. At the same time, it was good that we made most of these mistakes early on during our financial independence journey (except AQN) so we can learn from these mistakes.

What are the key lessons I have learned and the key principles I have developed from owning these five investments?

  1. Never leverage, that includes borrowing money to invest and use leveraged ETFs
  2. No penny stocks (I didn’t include any here but owned a few in the past)
  3. No niche ETFs, especially ones I don’t understand

I can’t say we won’t make any more mistakes as we move forward. The key, as mentioned, is to limit the number of mistakes and maximize winners.

What are some of your worst investments?

Hi there, I’m Bob from Vancouver, Canada. My wife & I started dividend investing in 2011 with the dream of living off dividends in our 40’s. Today our portfolio generates over $5,000 in dividends per month. We originally dreamed to become financial independent and live off dividends by 2025. Although we could live off dividends by supplementing it with a part time income in 2025, we aren’t in a rush to cross so called “finish line.” Therefore, we are taking it easy and we plan to realize the dream of living off dividends before 2030. This post originally appeared on Tawcan on July 7, 2025 and is republished on Findependence Hub with the permission of Bob Lai.

Investing for Income vs. Total Return: Why choose?

Posted By |

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Welcome to a new Weekend Reading edition, on an important but seemingly never-ending debate: should you be investing for income or total return?

Maybe in the end, why choose one over the other at all???

First up, recent articles on my site.

I contributed to this recent MoneySense Best ETFs in Canada edition – that includes one global ETF I own for total return since 2020:

And, I shared our planned financial independendence budget. I would be happy to compare notes with you on what you intend to spend and when in your retirement.

Investing for Income vs. Total Return, why choose?

Leading off this Weekend Reading edition, a theme I’ve written about from time to time here: income investing vs. total return.

Is there a right way to invest? Which one is better?

Both approaches have merit: which was the subject of my enjoyable debate with passionate DIY income investor Henry Mah a few weeks ago. You can watch it here!

Personally, while I’ve always had a passion for owning some dividend-paying stocks in my portfolio and likely always will, I can’t ignore the benefits of total return.

At the core:

Investors often focus on total return and likely should during their asset accumulation years in particular since total return encompasses both income generation, such as dividends, and capital appreciation (changes in the market value of your investments). We should all know by now that growth/price increases remain an essential component of wealth-building: prices moving higher and higher than what you paid for them is good.

Income investing focuses on generating regular cash flow from your investments, rather than solely relying on capital appreciation or downplaying it based on your stock selections. Income funds, income-oriented Exchange Traded Funds (ETFs) or in Henry’s particular case, owning a small basket of concentrated stocks from the TSX that pay dividends has provided income-focused investors like Henry arguably lower-risk for him while growing his income higher over time via higher dividend payments.

Honest Math - Dividends

In the TD debate here, I argued striking the right balance between income needs and growth in the total return equation is probably best for most: it has historically delivered long-term success and there is no reason to believe why a basket of global stocks won’t continue to do so.

So, I get the income investor debate, I really do, and maybe moreso given I consider myself in semi-retirement now; my part-time work started a few months ago.

Investing for income via dividend stocks often includes these benefits for retirees:

  • Tangible income: shares of companies that distribute a portion of their profits to shareholders, are often mature and established businesses that have ample cashflow to sustain their payment obligations. This tangible income (and arguably stable income) can help cover living expenses.
  • Rising income: such established companies can also raise their dividends year-over-year, rewarding shareholders with rising income that can help offset inflationary pressures. Sustained 3-4% or more dividend increases by some companies can be inflation-fighters.
  • Tax benefits: depending on what stocks you own where (i.e., in what accounts), dividend payments can offer favourable tax benefits. Read about the tax treatment of Canadian dividends below. 

Academic history lessons along with any Google search on this subject will show various charts and graphs that demonstrate the critical role that dividends – and, in particular, reinvested dividends – play in delivering an attractive total return to investors over time. But this just makes sense, in that reinvested dividends are like not getting any dividend payment paid to you in the first place …

Another important contributor to equity market returns has been dividend growth. Equities are growth assets – which I argued in the TD debate – so companies who tend to grow their revenues, profits and earnings over time, is the reason why they can continue to reward their shareholders with higher dividend payments. Growth is needed, for total return, for your/our juicy dividend payments to continue. Continue Reading…

The Financial Philosophy Gap: Why most Advisors Underperform by 3% annually

Posted By |

How Financial Advisors’ Misguided Beliefs and Inconsistent Execution Cost Investors – And What you can do about it

Canva Custom Creation/Lowrie Financial

By Steve Lowrie, CFA

Special to Financial Independence Hub

I recently had a conversation with another advisory firm: one that a colleague suggested I connect with because, as they put it, “you two have very similar investment philosophies.”

Intrigued by this comparison, I was eager to dive deeper into what that actually meant.

What I discovered was both fascinating and troubling.

 

When Philosophy meets Reality: The Disconnect between Investment Beliefs and Actions

During our discussion, I learned that this firm does indeed espouse many of the same core beliefs I hold: the importance of evidence-based investing, the value of diversification, and the wisdom of tax-efficient portfolio construction. On the surface, we seemed perfectly aligned.

But when we got into the specifics of their actual portfolio implementation, a striking contradiction emerged. While half of their clients’ portfolios consisted of low-cost, evidence-based, tax-efficient investments – exactly what you’d expect from someone who claims to believe in these principles – the other half was devoted to picking individual stocks, building concentrated positions, and constructing what could only be described as under-diversified portfolios.

This revelation left me with a fundamental question: How much of a “philosophy” is it really when your execution directly contradicts your stated beliefs?

The conversation highlighted a critical distinction that I believe many investors – and even some financial advisors – fail to recognize: the difference between having an investment philosophy and having an investment approach. If you truly believe in your philosophy, shouldn’t everything else flow naturally from that foundation? Shouldn’t your entire process, from research to implementation, be a coherent expression of those core beliefs?

This experience reminded me why consistency between philosophy and execution isn’t just an academic exercise: it’s the foundation of trustworthy investment management.

The Research that Confirms what many Suspect

On the heels of this revelation, I decided to review some research that I saw originally a few years ago that concluded that the average Canadian financial advisor’s approach to managing investments results in a predictable, measurable drag compared to simpler, evidence-based methods.

The groundbreaking Canadian study published in the Journal of Finance, titled “The Misguided Beliefs of Financial Advisors,  sheds valuable light on this puzzling behaviour. Researchers analyzed data from more than 4,000 financial advisors managing nearly half a million Canadian investment accounts over a 14-year period. They found that advisors persistently preferred expensive, actively managed mutual funds, exhibited frequent trading, chased recent returns, and remained consistently under-diversified. Remarkably, these behaviours were not driven primarily by conflicts of interest. Even after leaving the industry, former advisors continued making the same investment mistakes in their personal portfolios. They simply held misguided beliefs about investing.

The Real Cost of Misguided Beliefs

On average, this approach resulted in an annual performance drag of approximately 3% compared to simpler, evidence-based alternatives. In other words, financial advisors, who are trusted to provide sound guidance, systematically underperformed basic benchmarks. That means an investor who might otherwise have earned a 6% return annually ended up with closer to 3% per year, an enormous difference compounded over decades. That may make you wary of financial advisors’ expertise but before you decide to turn to DIY investing, know that those results are far worse – we will address that in next month’s blog topic.

My own experience over the past three decades aligns closely with an anecdotal yet widely observed the Pareto Principle, or the 80/20 rule. Whether the actual split is 80/20, 90/10, or 70/30, I believe the exact ratio doesn’t matter. The key point is that most financial advisors, while good-intentioned and, in almost all cases, genuinely good people, hold misguided beliefs by relying heavily on conventional wisdom, industry norms, and following the crowd. They recommend strategies that are both active and expensive simply because “that’s what everyone else is doing.” Often, financial advisors genuinely believe their methods are superior, even when the data clearly shows otherwise. It’s challenging to overcome deeply ingrained biases and the inertia of established industry practices.

Real-World consequences I’ve witnessed

I have witnessed firsthand the real-life consequences of these biases. On numerous occasions, when I have analyzed portfolios using these active strategies and frequent trading, I have seen a repeated, persistent drag of two to three per cent per year compared to straightforward, evidence-based approaches. Clients would frequently tell me something along the lines of, “I always assumed that more activity meant more opportunity, but now I see it was just adding costs and not gaining any advantage. Plus, I could never figure out why I had such large tax bills from my investment portfolio.”

The Psychology behind the Problem

Why does this happen so consistently? Advisors, like investors in general, are subject to well-known cognitive biases. Behavioural finance research highlights several specific tendencies:

First, there is the action bias, which is the perception that more frequent decisions and adjustments will lead to better outcomes. Second, there’s recency bias, the tendency to chase recent market winners and avoid recent underperformers, even though historical evidence repeatedly demonstrates that recent performance rarely predicts future success. Third, there’s overconfidence bias, which is exceptionally common among financial professionals. Advisors tend to overestimate their own ability to pick winning investments and manage risk effectively, often without considering objective evidence to the contrary.

Financial Services Industry incentives that reinforce Bad Habits

Beyond biases, the financial services industry itself often reinforces these behaviours. Financial media often sensationalize stock picks, active trading, and market timing as strategies employed by sophisticated investors. Advisors who choose simpler, evidence-based approaches often face client skepticism simply because their methods appear less exciting. This creates a perverse incentive: advisors may gravitate toward complex solutions that justify higher fees, even if those solutions deliver consistently poorer results.

The Evidence-Based Alternative Continue Reading…