Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

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

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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…

Securing your family’s Financial Future: Advanced Planning Techniques for 2025

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Image from Pexels: Olia Danilevich

By Devin Partida

Special to Financial Independence Hub

Life is unpredictable and as the economic landscape evolves, driven by inflation, health care expenses, tax reformation and global volatility, families need to consider proactive financial strategies. Your plan should include strategic trusts, tax optimization and investment frameworks aligned with long-term family goals. A smart approach will ensure your family’s legacy continues for generations.

Assess your Family’s Finances

Make a list of all fixed and variable income and expenses. Then, establish which expenses can be adjusted in your budget and find a clear financial goal. The most important aspect is to consult a professional about how your income and expenditure impact estate planning.

Only 24% of Americans have a will, a key estate planning document. An estate plan is a comprehensive strategy outlining how funds will be distributed throughout one’s lifetime and afterward. Your plan should include trust creation, estate tax optimization and sophisticated investment strategies. It should also adapt to inflation, health care costs and downturns.

Create a Trust

A trust is created when a settler grants permission to a third party — also known as the trustee —  to manage assets for the beneficiary. The trustee draws up the documentation, which the settler approves. When the settler seeks the guidance of a trustee, they can create a trust for three reasons: tax minimization, asset preservation and wealth protection from creditors. Trusts are tools that provide control and seamless transfers throughout generations.

Trust funds are categorized into revocable and irrevocable trusts. Revocable trusts allow the settler to remove and change the trust during their lifetime. Irrevocable trusts cannot be changed or revoked once created. Based on your family’s needs, you can choose between several types of trusts with the help of a corporate trustee.

Maximize Estate Tax Efficiency

Tax efficiency means keeping more of your money by legally reducing what you owe in taxes. Without a trust, your assets go through probate and the slow court process, which can negatively affect the amount of money you receive.

When you use a trust, your family gets the funds faster with fewer tax fees. Certain trusts — like irrevocable ones — remove assets from your tax estate, so your family may pay less taxes later.

You can also use gift exemptions. As of 2025, you [an American] can give up to US$19,000 to a person tax-free annually.

Use a Long-Term, Sophisticated Investment Strategy

Saving is important but building wealth is about how and where you save it. Smart allocation, tax efficiency and diversification are essential.  

  • Tax-inefficient investments: Place your tax-inefficient investments — like bonds — in 401 (k)s.
  • Tax-efficient investments: Place your tax-efficient investments in taxable accounts.
  • Tax-loss harvesting: Sell your investments that have declined in value so the realized losses can reduce your taxable capital gains. You can then reinvest the proceeds into another investment.
  • AI-driven planning tools: Use various platforms to assess real-time asset rebalancing.

Plan for Surprises

Inflation erodes purchasing power because when prices increase for goods and services, you get less value for your money. Plan for inflation, health care costs and economic downturns.   Continue Reading…

Am I a Broken Clock on U.S. stock valuations?

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Image by Pexels: Лев Рогожников

By John De Goey, CFP, CIM

Special to Financial Independence Hub

There’s an old joke that even a broken clock is right twice a day.

At the risk of sounding (and acting) like a broken clock, I wanted to take this opportunity to reiterate a concern that many people have heard me express previously: markets are expensive and therefore risky.

To compound matters further, United States President Donald Trump is again threatening to impose tariffs on a wide variety of nations, this time starting on August 1st.

Mark Carney is leading the Canadian delegation in trying to work out a new arrangement that many hope will be less punitive then might otherwise be the case. It remains to be seen if this can be accomplished, and at any rate, not likely not be finalized before the August 1st deadline.

 

Geopolitical instability

That’s just another way of saying that geopolitical instability remains the topic du jour. Irrespective of what the final outcome looks like, there is a consensus that tariffs will ultimately settle in at a level that is not been seen in over half a century. Supply chains will be disrupted, and inflationary pressure will accelerate.

The concerns raised in the previous paragraph are unique to the ascendancy of President Trump and 2025. What follows is a summary of broad macro indicators that have been flashing red for many years prior.

To begin, the U.S. national debt now stands at over US$37.1 trillion. Legislation passed earlier this month guarantees that deficit spending will accelerate in the United States, and it is already over US$2 trillion a year. Such profligacy is not sustainable. It goes along way to explaining why Trump is demanding Federal Reserve chair Powell lower rates. Of course, the previously referenced inflationary pressure makes that proposition unlikely.

CAPE ratio highest since Dot.com bubble

In addition, professor Robert Shiller’s CAPE (cyclically adjusted price earnings) ratio stands at 38.8 as of July 24th. That’s the highest it has been since the .com bubble burst. It is more than twice as high as the historical average.

Further still, the so-called Buffett ratio favored by industry icon Warren Buffett stands at 212 as of July 24th. That’s the highest it has been in recorded history. Continue Reading…

Bonds are Back

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Image from Outcome/Shutterstock

Guess who just got back today

Them wild-eyed boys that had been away

Haven’t changed, had much to say

But man, I still think them cats are crazy

 The boys are back in town, the boys are back in town

  • The Boys Are Back in Town, by Thin Lizzy 

By Noah Solomon

Special to Financial Independence Hub

Government Bonds: The Gift That (Usually) Keeps on Giving

Historically, bonds have provided investors with two main benefits. Firstly, their yields have provided a reasonable, if unspectacular return. Secondly, they have offered diversification value, muting overall portfolio losses during bear markets. By owning high-quality bonds, you got paid for protecting your portfolio during times of market turmoil, which is akin to receiving (rather than paying) a premium for fire insurance: a remarkably sweet deal indeed!

However, these benefits have historically ranged from significant to nonexistent, depending on the investment environment. Given this fact, Investors should alter their bond exposure as conditions warrant, both in terms of their aggregate allocation to the asset class as well their bond portfolios’ exposures to changes in interest rates and credit conditions.

A Bear Market Sedative

As the following table illustrates, in five of the six equity bear markets before that of 2022, bonds provided investors with much needed gains, thereby mitigating the overall damage to their portfolios.

During the tech wreck of the early 2000s, a balanced portfolio that was 60% weighted in the S&P 500 and 40% weighted in 7–10-year U.S. Treasuries declined 16.41%, as compared to a fall of 42.46% for the all-stock portfolio. In the global financial crisis (GFC) of 2007-2009, the balanced portfolio lost 23.92% vs. a loss of 45.76% in equities.

The ZIRP Era and the Erosion of Bond Powers

During the GFC, central banks entered hyper-stimulus mode to stave off a collapse of the global financial system and avoid a worldwide depression. ZIRP (zero interest rate policy) stances became the norm for monetary authorities around the world, with rates remaining at historically low levels for the next 14 years.

Bonds eventually became a victim of their own success. Although stimulative policies were successful in making the great recession less severe than would have otherwise been the case, they also robbed bonds of their two key attributes. Firstly, high-quality bonds ceased to offer reasonable yields. Secondly, ultra low rates also limited the ability of bonds to provide capital gains during times of equity market turmoil, thereby hindering their diversification value.

In 2016, PIMCO Co-Founder and “Bond King” Bill Gross commented that to repeat the bond market’s 7.5% annualized return over the past 40 years, yields would have to drop to negative 17%:  the math just didn’t work!

A Clear Warning Sign

As the saying goes, “Hindsight is 20/20.” It is easy to understand what should have been done after an event has already happened, even if it was not obvious at the time. However, market behaviour during the Covid crash offered a clear warning that all was not well in bond land.

The following table compares countries by their pre-pandemic short-term rates and the returns of their 10-year government bonds during the subsequent bear market.

There is a near perfect relationship across countries in terms of where their short-term rates stood prior to the pandemic and the subsequent return of their 10-Year bonds.

  • In the countries that initially had relatively high short-term rates, such as the U.S. Canada, and Norway, 10-year bonds produced substantial gains and mitigated the damage caused by the vicious decline in stocks.
  • In countries that started with rates that were neither relatively high nor low, such as the UK and Australia, 10-year bonds provided some, albeit lower amounts of protection.
  • Lastly, in countries which started with the lowest rates, such as Sweden, Japan, Germany, and Switzerland, not only did government bonds fail to mitigate stock losses but actually declined.

Given the strong correlation between where pre-Covid rates stood in different countries and the subsequent ability of their bond markets to offset stock market losses, it was clear that there was little, if any, gas left in the tank in the post-Covid world of zero rates, leaving investors largely unprotected.

From Hedge to Texas Hedge

Post-Covid, not only did ultra-low rates obliterate the insurance value of bond holdings, but the unprecedented amounts of monetary and fiscal stimulus that had been injected into the global economy left bonds particularly vulnerable to capital losses. Against this backdrop, when the rubber of stimulus hit the road of inflation in early 2022, central banks were forced to raise rates at a clip not seen since the Volcker era of the 1980s, resulting in painful declines in bond prices. Continue Reading…

This Lunch is Free: Global Diversification with BMO All Equity ETF (Ticker: ZEQT)

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By Sheldon Quan King, BMO Global Asset Management

(Sponsor Blog)

Diversification remains one of the most powerful portfolio construction tools available to investors—a principle first introduced by Harry Markowitz in the 1950s, who famously coined the phrase, “diversification is the only free lunch in investing.”1

At its core, diversification aims to maximize return for a given level of risk. This concept is the foundation behind BMO’s Asset Allocation ETFs, designed to provide investors with a globally diversified portfolio through a single, low-cost ETF. To deliver even greater value, BMO has recently reduced the management fee for some of its most popular Asset Allocation ETFs to just 0.15%.

The most important Decision

Asset allocation is widely recognized as the most critical determinant of long-term portfolio performance. The landmark research by Brinson, Hood, and Beebower (1986) revealed that 90% of return variability can be attributed to the mix of asset classes within a portfolio: not market timing or individual security selection.

For investors seeking a disciplined, strategic asset allocation[i] ETF to meet a growth objective, BMO All Equity ETF (Ticker: ZEQT) is a compelling choice. With an asset mix of 100% equities and 0% fixed income, ZEQT provides global equity exposure for long-term growth, while maintaining its target asset mix with built-in rebalancing.

Target Asset Allocations 

   Source: BMO Global Asset Management, as of May 30, 2025

Rethinking Global Diversification

Many global funds today are heavily concentrated in U.S. equities: given that a global benchmark, the MSCI World Index, allocates approximately 70% to the U.S. ZEQT offers a more balanced global allocation, reducing reliance on U.S. markets to 47%. Notably, ZEQT includes a 28% allocation to Canadian equities, appealing to investors looking to “buy Canada” amid geopolitical concerns such as trade tensions or tariff threats.

BMO Global Asset Management, as of April 30, 2025. The asset allocation is subject to change without notice.

 What’s inside: Key portfolio ingredients

The core building blocks of ZEQT are among the largest and most cost-effective ETFs in Canada. tracking well known indices like S&P and MSCI, to provide broad exposure to international markets:

  • BMO MSCI EAFE Index ETF – Ticker: ZEA (0.20% mgmt. fee): Covers developed equity markets outside North America, including Europe and Japan.
  • BMO MSCI Emerging Markets ETF – Ticker: ZEM (0.25% mgmt. fee): Adds growth potential from emerging market equities including India and Taiwan.BMO Global Asset Management, as of April 30, 2025. Investors only pay the mgmt fee at the ETF level of 0.15%, not the  underlying ETF mgmt fees of 0.20 and 0.25%.

To enhance U.S. market cap diversification and achieve more potential growth, ZEQT includes:

These ETFs apply a profitability screen, targeting higher-quality mid- and small-cap companies in the U.S. ZEQT also spans all major sectors, helping reduce risk as different sectors rotate in and out of favour through economic cycles.

Source: BMO Global Asset Management. The sector allocations are subject to change without notice. ZEQT sector allocation, as of June 2, 2025.

Bottom Line

For advisors who focus on delivering holistic wealth management — integrating tax, insurance, and estate planning — ZEQT offers a simple, scalable core portfolio solution for their practice. It allows advisors to efficiently manage client assets without sacrificing diversification,  transparency, or costs.

And for self-directed investors, ZEQT does all the heavy lifting. With global exposure, automatic rebalancing, and all-in-one simplicity, it truly represents a “set it and forget it” investment that is built for the long run.

Again, as of June 9, ZEQT alongside BMO’s  three other most popular asset allocation ETFs, management fees have been cut by three basis points to 0.15%: amongst the lowest in Canada.

* Effective after market close on June 6, 2025.

Footnotes

1 UBS, Diversification is the logical solution to an unpredictable future. January 10, 2025

Performance (%)

Fund Year-to-date 1-month 3-month 6-month 1-year 3-year 5-year 10-year Since inception
ZEQT 1.96 5.21 -1.37 1.01 14.77 13.92 – – 10.82

Bloomberg, as of May 31, 2025. Inception date for ZEQT = January 24, 2022.

 

Definitions

[1]  Strategic Asset Allocation: a portfolio strategy where target allocations are set for various asset classes and then the portfolio is rebalanced periodically. The portfolio is rebalanced to the original allocations when they deviate significantly from the initial settings due to differing returns from the various assets.

Sheldon Quan King is Senior Product Manager for BMO Global Asset Management.  Sheldon has over 10+ years of industry experience and has spent the last 9 years growing BMO Global Asset Management’s suite of Mutual Funds and ETFs. Previously, on the ETF Institutional and Service team Sheldon and has also been a guest speaker at Canadian Universities delivering ETF education to students. His primary focus now is ETF product marketing at BMO ETFs by engaging stock exchanges, capital markets desks, index providers, and portfolio managers to grow BMO’s existing suite and and launch new ETFs. Sheldon graduated with a Bachelors Degree in Psychology from York University, and is a CFA Level 3 candidate. 

 Disclaimers:

This article is for informational or educational purposes only and does not provide investment advice or recommendations.

All investments involve risk. The value of an ETF can go down as well as up and you could lose money. The risk of an ETF is rated based on the volatility of the ETF’s returns using the standardized risk classification methodology mandated by the Canadian Securities Administrators. Historical volatility doesn’t tell you how volatile an ETF will be in the future. An ETF with a risk rating of “low” can still lose money. For more information about the risk rating and specific risks that can affect an ETF’s returns, see the BMO ETFs’ simplified prospectus. BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results.

ZEA and ZEM or securities referred to herein are not sponsored, endorsed or promoted by MSCI Inc. (“MSCI”), and MSCI bears no liability with respect to ZEA or ZEM or securities or any index on which ZEA or ZEM or securities are based. The prospectus of the BMO ETFs contains a more detailed description of the limited relationship MSCI has with BMO Asset Management Inc. and any related BMO ETFs.

An S&P, Dow Jones, Standard & Poor or S&P index (the "Index"): the Index is a product of S&P Dow Jones Indices LLC or its affiliates ("SPDJI"), and has been licensed for use by the Manager. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates ("S&P") and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"), and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the Manager. ZSP, ZMID and ZSML are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or simplified prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/​or elimination.

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.

This material is for information purposes only. The information contained herein is not, and should not be construed as investment, tax or legal advice to any party. Particular investments and/​or trading strategies should be evaluated and professional advice should be obtained with respect to any circumstance.

The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent  prospectus.

“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.