August 11, 2022

MEGANEGANE

Just Do It

Opinion: On finding surprisingly good financial advice on

Navneet Alang is a Toronto-based freelance technology culture columnist.

Some years ago, frustrated with the performance of her portfolio, my septuagenarian mother fired her big-bank financial adviser and handed over the keys of my folks’ modest nest egg to me.

Gulp.

While I had some familiarity with the basics of investing, I nonetheless had questions. Were bonds still vital for retirees in an era of record-low interest rates? Were Canadian dividend exchange-traded funds best kept in a registered or unregistered account?

To try and get a handle on this new responsibility, I turned to what some may consider an unlikely source of advice: Reddit.

That name can conjure a raised eyebrow or two – as it probably should. The social news site has, over the years, been home to a variety of questionable things, including bigoted and obscene content. Beyond the more extreme material, Reddit has also developed a reputation for fostering reckless investing. Last year, the Wall Street Bets forum was the engine behind the meme stock phenomenon that pushed AMC Entertainment, GameStop and other equities to arguably unjustified highs. Reddit hardly seems like a bastion of calm rationality for the nervous investor.

But Reddit is organized into groups called subreddits, siloed off into an endless array of topics – science, coffee, politics, transit and so on forever. Those niches each develop their own culture and focus, and in a “sub” called Personal Finance Canada, about 800,000 members turn to each other for advice on all things financial.

The surprising thing is that much of the advice in that sub is actually, well, good.

Personal Finance Canada is organized into individual posts, mostly questions about anything related to money: taxes, saving, investing and real estate. On each post, people can comment underneath. Some queries get a handful of responses, while others – often about evergreen Canadian topics such as real estate or tax burdens – can spin out into conversations with hundreds of reactions.

Posts there will often heap praise upon index investing using the low-cost ETFs that many Canadians have already embraced. Mantras of conservative investing – “time in the market beats timing the market” – are repeated often, and while other parts of Reddit hype crypto or encourage big plays, Personal Finance Canada instead usually suggests just picking an all-in-one ETF with a mix of stocks and bonds that works for you.

And while informal advice about money always comes with risks, Reddit’s Personal Finance Canada is part of a growing shift toward seeking information about one’s finances outside the confines of traditional institutions.

It is a shift that has accelerated since COVID-19, according to Nicole McKnight, public relations manager at Finder.com. Finder is a shopping comparison site that lets readers compare things such as credit cards, loans or cellphone plans. Last year, the site surveyed some of its Canadian users regarding the use of a financial adviser and found a trend toward greater independence.

“The start of the pandemic was when retail investors really started doing their own research on investing,” says Ms. McKnight, “and we were surprised to see that a lot of people were moving away from their financial advisers.”

Ms. McKnight notes that about 7 per cent of those surveyed planned to stop working with their financial adviser. And when one adds in those who were thinking about it, the number rises to 18 per cent.

That change toward greater independence is, perhaps unsurprisingly, generational. One in three millennials surveyed planned to move away from professional advice, while only 11 per cent of boomers said the same.

But as the pandemic and the related trends of mask and vaccine misinformation has clearly shown, when people start doing their own research, things can go awry quickly.

Shiu-Yik Au is an assistant professor of finance at the University of Manitoba. He began frequenting Reddit’s Personal Finance Canada last year when he had a question about why his bank had inexplicably closed off his line of credit.

Given the venue, one might expect the quality of the responses to be suspect – but that turns out to not always be true.

“People ask questions that are very obscure, like, ‘Do I count as a tax non resident?’” Mr. Au says. He guesstimates that 10 to 20 per cent of the posters have real experience in their area “and are really good at it.”

Particularly popular on the subreddit are all-in-one index ETFs, comparatively new products like, say, the Vanguard Balanced ETF Portfolio (VBAL), which has a 60/40 mix of global stocks and bonds. More often than not, questions about where to invest on Personal Finance Canada will be met with the suggestion to just buy one of these newer ETFs.

With fees far lower than mutual funds, and fast, commission-free buying available on newer platforms such as Wealthsimple or Questrade, it’s hardly a surprise that people have shifted to doing things on their own – particularly since, as many on Personal Finance Canada will insist, few money managers actually beat the market.

But the randomness and volume of posts means that though advice on Personal Finance Canada can sometimes be unexpectedly good, it can also be the opposite too.

Reddit skews mostly male, and mostly younger, and as young men they are going to have a focus on finances that aren’t necessarily appropriate for many people, Mr. Au says.

He points to advice encouraging people to take out leverage with which to invest, owing to the prolonged bull market over the past decade or so – a path that could go profoundly wrong in the event of a sharp or extended downturn.

But like other fields in finance such as tax returns, wills, real estate and more, there is a sense among younger generations that doing it oneself is better – and that more than that, the professionals simply aren’t necessary.

Real estate agents and mutual fund advisers are particular targets of vitriol on Personal Finance Canada, Mr. Au says. “It’s almost irrational. They have this view that those professionals are like leeches, and they provide no value.”

It is, unsurprisingly, not a popular view among those professionals.

Christine Van Cauwenberghe is the head of financial planning at IG Wealth Management. She believes that while new platforms and sources of advice have their place, what is missing when one turns to amateurs is a more holistic sense of one’s financial situation and future.

“We’re finding that people are taking on a lot of additional risk, and it’s just due to the fact that they’re investing without any advice,” Ms. Van Cauwenberghe says.

“They also haven’t thought about financial planning in general. So they know what their portfolio is worth on any given day, but they have no idea if they’re earning the right rate of return or saving at the right pace to achieve their actual goals.”

What can thus be missing on Reddit and other social media is advice that is both tailored to one’s needs, and that sees finance holistically – not just as investing or saving, but a set of needs and goals in one’s life.

“That kind of personalized advice is very expensive,” Mr. Au says, “and if you’ve ever dealt with a real professional, you’ll see that it actually provides a real value.”

Part of that value, says Mr. Au, is the knowledge that comes from experience. But part of it is just the dispassionate input from a professional, especially during downturns when we ourselves might panic.

A strictly fee-based adviser – that is, an adviser who makes money through the advice they give, not the products they sell you – can thus be extremely helpful, and the more money one has, the truer that becomes.

Still, for those of us of more modest means, you could do worse than the advice I’ve found on Reddit. Pay off high-interest debt first. Have an emergency fund. Max out your tax-free savings account, and your registered retirement savings plan too – depending on your income. And when it comes to investing, all-in-one ETFs that diversify your risk across geography, sector and asset class are the most reliable – and cheap – way to benefit from the markets.

If you have questions about investing or money, the Personal Finance Canada subreddit isn’t a bad place to start. And while free advice is often worth about as much as it costs, my mother’s trust in me appears to have been well-founded. At last check, my parents’ portfolio has grown at a healthy clip – with nary a professional in sight.

Special to The Globe and Mail

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.