When learning how to invest, we are consistently told to conduct our “due diligence” on the investments that we’re considering buying. Yet, almost all of us haven’t actually been trained on how to analyze the investments that we’re considering, so that we choose the ones that are right for our particular situation.

To help remedy this, I thought it would be good to give listeners a bit of a training on how to actually interpret the figures and terminology that we see used here in Canada, when we’re considering purchasing an investment. 

Now this is obviously a very large topic as there are many types of investments, so I thought we could start with learning how to understand bonds (especially bond ETFs). 

We’ve definitely seen some drops in the market recently and I suspect many investors are wondering about holding bonds, if they are holding the right types of bonds, and how to actually interpret the data that you see when you’re looking up information about a bond ETF. 

Guest Bio:

To help me with this, I have Danielle Neziol back on the show. Danielle and her team actually created and continue to manage the largest bond ETF in Canada (and in case you’re curious, that ETF is ZAG from BMO ETFs which now has over $5.8 billion in net assets). 

Danielle is the Vice President over at BMO ETFs, and I thought it would be great for us to actually get some training from her on how to interpret the facts sheets that we all see when we look up any type of bond ETF, no matter who the provider is.

My goal is that this interview gives you the knowledge to be more confident in your investing, and hopefully helps relieve any anxiety that you may feel when it comes to choosing your own investments, or helping ensure that you are in the types of investments that are the best fit for you.

Resources Mentioned:

Danielle and her team host free weekly webinars where you can learn more about ETFs, as well as ask them your ETF questions. I've been a guest there several times and it really is a great resource for Canadian DIY investors.

You can view past replays and sign up to attend the upcoming webinars for free here: etfmarketinsights.com

Also, be sure to subscribe to the ETF Market Insights YouTube Channel where you can also see past recordings.

Questions Covered:

1. Investors place a lot of time deciding how much of their portfolio should go into bonds vs stocks. Yet, when it comes to bonds, there are several different types and they can each behave differently. Can you speak to the different types of bond ETFs out there, and what differences can we expect from them? Especially when it comes to changing interest rates and different economic climates?
   
   
2. When examining all these different types, I can see it being overwhelming for some investors when they do a search and see dozens of different bond ETFs out there from all the different providers. One may begin to wonder whether they should pick and choose individual bond ETFs, or whether they should just hold one large aggregate bond ETF like ZAG which holds all these different types of bonds in a diversified manner. For those struggling with this question, what advice can you give?
   
   
3. Does a rising interest rate environment like we are in now change how we should be thinking about bonds?
   
   
4. Often when I see a model portfolio from a professional in the industry, the bond portion of the portfolio includes a bond ETF that contains only Canadian bonds. ZAG if I’m not mistaken also holds exclusively different types of Canadian bonds. Why is that, when with equities on the other hand, we want international diversification?
   
   
5. One of Canada’s largest bond ETFs (ZAG) is designed to replicate the FTSE Canada Universe Bond Index. Is this index a standard that many other bond ETF providers are using as well? And for us index investors, how can we make sure that the ETF we choose is trying to replicate the correct index?
   
   
6. When evaluating which bond ETF(s) to use for our investment portfolio, we should be looking at the fact sheets of those bond ETFs to get a better understanding of what they are and how they are likely to behave.
   
   Yet, most of us haven’t been trained on how to read these, especially in regard to what the different terms mean. I was hoping that we could go through a real-life bond ETF fact sheet and you could tell us what some of the less obvious terms mean, and what we should be looking for.
   
   Let’s use ZAG as an example. Listeners can go to BuildWealthCanada.ca/zag for anybody that wants to follow along:
   
   Weighted Average Term (year): Can you speak to what that is, and what impact does that have on what you can expect from the ETF?
   
   I think at the end of the day, a lot of investors what to know, “If I buy this bond ETF now, what kind of interest income can I expect to receive?” When we look at the fact sheet of a bond ETF however, we see three different percentages. There’s the: 

• • “Weighted Average Coupon %”
  • the “Annualized Distribution Yield”
  • and the “Weighted Average Yield to Maturity”.
    
    What do each of these mean? And how can we interpret the numbers provided there?
    
    Next, we have two terms that apply to equity ETFs as well, and that’s “Maximum Annual Management Fee” and “Management Expense Ration” (the MER). Can you explain the difference between the two, and how should investors interpret these numbers when they see them on any ETF in the marketplace?
    
    What would you consider a higher vs low MER?

7. ETF fact sheets typically have an annualized performance section where they show how the ETF performed relative to its index. For ETFs that are looking to match the index, what would be considered a reasonable spread between the two vs a concerning number?

8. One page that seems especially critical to evaluate, whether evaluating a bond ETF or an equity ETF, is the “Holdings” page where we see all the investments that the ETF contains. Let’s pretend that you just pulled up a core bond ETF like ZAG and went to its holdings page. What would you look for and how would you analyze and interpret the data that you see there? (for anybody that wants to follow along, you can go to BuildWealthCanada.ca/zag and that will forward you there) and click on the holdings tab.

Areas to cover:

• Sector allocation
• Geographic allocation
• Maturity
• Credit allocation

Are there any other areas that you think are critical to look at, and if an investor is feeling overwhelmed by the large amount of bond ETFs out there and is getting into a bit of paralysis analysis, what would you recommend as their next step?

9. Can you speak to the relationship that bonds have with rising interest rates, and at what point do we start to take advantage of those higher interest rates in our bond portfolio to offset the drop in price that occurs when interest rates go up?

10. For anybody looking to learn more, can you tell us more about ETF Market Insights, the YouTube channel, and any other resources listeners may find helpful?

Today I’m extremely excited to have Canadian best-selling author, Andrew Hallam back on the show. His first book, Millionaire Teacher continues to be the #1 best seller in the Investment and Portfolio Management category on Amazon.

He is one of the world’s most prolific financial wellness speakers and over the past 16 years, he has given hundreds of talks in over 30 different countries espousing research on financial wellness, sound investing and life satisfaction.

He has been investing in the stock market for 32 years, having built a million-dollar portfolio on a schoolteacher's salary when he was in his late 30s.

In today’s interview with Andrew, we cover the subject of how to achieve balance, and how to maximize your happiness, health, and wealth.

We also cover what to expect and how to maintain balance after having hit your financial independence number. Lots of early retirees in the FIRE movement and traditional retirees continue to do some sort of productive paid work. Why is that, and is it realistic to never work again after you retire? 

As you can imagine, generating some minor income after retirement, doing something you love, can drastically decrease how much money you actually need to retire from your day job, potentially letting you leave that job you may dislike or be bored with many years earlier. 

Since Andrew is already financially independent, we dissect how Andrew has found that balance in his life between taking on meaningful and fulfilling work, and balancing that with leisure, health, and happiness.

Questions Covered:

1. When a lot of people, myself included start their financial independence journey, the goal is to never work again and that becomes a major motivator to accumulate all those savings to be able to retire.

Yet from my own experience and after interviewing many other early retirees, I've noticed a pattern where most if not all still end up doing some sort of productive work or something that could be classified as “work” even though they don't have to, since they've already reached their financial independence number.

Did you have the same experience as you moved from the accumulation stage to the financial independence and retirement stage, and from your experience what have you found to be a good balance in your own life?

2. You've spoken with many other early retirees who I assume had a similar experience in terms of that progression from initially never wanting to work again and live a life of leisure permanently, versus eventually realizing that there needs to be a balance to achieve sustainable happiness. Have you noticed any patterns from those you've talked to in terms of how they were able to find sustainable happiness and what that balance was for them in order to achieve it?

3. After reading your book, it becomes very clear that health and longevity is something that is a high priority for you, and should be for all of us since what’s the point of accumulating all this wealth and retiring if you don’t live long enough to enjoy it.

From the research that you’ve done, what have you found to be the best practices to maximize our health and longevity?

1. 1. Nutrition?
   2. Types of exercise and frequency?
   3. Cancer prevention?
   4. Stress control?
   5. Energy maximization?

4. In terms of maximizing happiness in retirement, is there a routine that you follow during any part of your day that works well for you? Or do you take a more fluid, go-with-the-flow approach, where things are more spontaneous?

5. Do you find that goal setting and trying to achieve growth and improvement in retirement adds to your happiness and fulfilment? Or do you take the approach of trying to just be happy with where you are, living in the moment, as opposed to continuously striving for more?

6. Please tell us again where we can learn more from you and get your latest book.