John Graham's Letter to Gen Z on the Canada Pension Plan
This message is for gen Z. If you’re not gen Z, I hope you’ll keep reading anyway.
As we mark Financial Literacy Month, I know many of you are feeling anxious about money. In fact, we’ve heard that over two-thirds of gen Z worry about making the wrong financial decisions and about the same number are concerned they will run out of money in retirement. It’s understandable — student loans, rent, house prices and the rising cost of living are a lot to manage at any age. At this point in your life, investing money systematically for retirement probably seems out of reach. Fortunately, if you’re part of the Canada Pension Plan (CPP), you’re already doing just that.
Here’s how the Canadian pension promise works: Every month, a small part of your pay goes into the CPP, matched by your employer. The amount not needed to pay current retirees is entrusted to the team at CPP Investments, where we focus solely on growing it for your retirement. When you’re ready to retire, you’ll receive a deposit in your bank account every month for as long as you live — adjusted for inflation to help ensure your financial security.
This year, we’re marking the 25th anniversary of CPP Investments. We started with $12 million; today, the CPP Fund stands at over $646 billion. Of that, $432 billion, after all costs, has come from the investment income we’ve generated on top of your contributions. Our mission is simple: While you’re building your life, education, career and family, we’re behind the scenes, quietly helping to grow and protect your retirement savings.
For your generation, the CPP will be especially important. People are living longer, and many of you might not retire in your 60s like past generations. You have more flexibility than ever before, as you’re expected to live to 100 and beyond. You may even choose to collect from the CPP while continuing to work, or while living abroad in retirement. Living your latter years differently — and on your own terms — has never been more possible. And the CPP will be essential in helping you do it.
With an annualized return of nine per cent over the past 10 years, we’re recognized as one of the best in the world at what we do. One reason for that is we’ve only ever had one goal: to produce stable returns that help pay pensions for Canadians. In a world where companies are preoccupied with day-to-day considerations, we stay laser focused on our singular purpose. We have no other choice; before we started to manage the CPP Fund, Canada’s senior poverty rate was among the highest in the world. Today, it is among the lowest.
We’re ready for the next generation. At 25 years old, CPP Investments is part of gen Z. Like you, we’ve grown up in an era of financial crises, inflationary cycles and even a global pandemic. And, like you, we’ve faced these challenges head-on.
But here’s the reality: Long-term investing is harder today than ever before. The world we live in now is more complex and unpredictable than it was even a decade ago. Markets today are increasingly rewarding short-termism, prioritizing quick wins over the long-term. However, we believe prioritizing growth through globally diversified investments and prudently managing risks will be required to meet retirement needs decades in the future.
What does this mean for you? At CPP Investments, we navigate these investment complexities alongside you, helping to keep one of your sources of retirement income safe. We continuously adapt our strategies, seize opportunities and manage risks — such as climate change and geopolitical risk — across a wide range of considerations, sectors and regions. Our priority is ensuring that our returns help provide pensions not just today, but for generations to come. We’re not chasing big wins or risking big losses — we focus on delivering steady, reliable returns you can count on.
So, this Financial Literacy Month, I’d encourage you to take two small steps. First, learn more about how the CPP fits into your financial future. You don’t have to figure everything out today, but understanding this piece can help reduce your financial stress and give you confidence to plan for the future. Second, take pride in the fact that, with every pay day, your retirement security is already being built.
For the two most important members of gen Z in my life — my kids — retirement will likely look very different from mine, but one thing remains certain: The Canadian pension promise will be there for us all.
Great article from John toward his kids and gen Z.
Most kids their age do not think of retirement or the Canada Pension Plan but with enhanced CPP, it's true that the Canada Pension Plan will become a lot more important to future generations in ensuring their retirement security.
Now, some basics. Every Canadian that works or is self-employed contributes to the Canada Pension Plan.
Those contributions are professionally managed by the professionals at CPP Investments, Canada's pension fund which pools investment and longevity risk and ensures there are more than enough assets to meet long-dated liabilities (Chief Actuary of Canada makes sure of that by reporting on this every three years).
The folks at CPP Investments are investing across public and private markets all over the world and with the best hedge funds all over the world.
Joe and Jane Retail Investor in Canada can't do that, they can only invest in stocks, bonds, ETFs through savings vehicles like RRSPs and TFSAs.
Now, I went to lunch earlier with some friends I haven't seen in a long time but we chat on our chat group daily.
We were discussing the best strategies for young kids starting to work and we agreed that RRSPs are a scam unless you're making big bucks and even if you are, at one point, you should stop contributing to them (or risk getting a whopper of a tax bill later on).
We said the best thing for young kids is to try to contribute as much as possible to their TFSA and start by investing the SPY ETF (S&P 500) or Nasdaq ETF (QQQ) and build up some savings.
The problem? Even if a young professional is making $80,000 a year, after paying rent, food, clothes and outings, there isn't much money left over to save so that TFSA limit of $7,000 in 2025 is almost impossible to achieve unless dad and mom help them save.
And again, saving money is tough enough, it's a lot tougher to earn investment returns which is why I suggest young people just invest in the S&P 500 ETF or a balanced fund if they want less risk (but when you're young, take risk as compound interest will help you over many years).
Why the S&P 500 and not the TSX? Because my bias is to always have your money in US dollars as you will come out ahead over the long run and the US stock market will always remain the deepest, most liquid and most diverse market in the world (with episodes of concentration risk like now).
CPP Investments is most exposed to US assets precisely for that reason but being Canada's pension fund, they also have Canadian investments.
What else? Teach your kids early about working hard, saving hard and playing hard (they need to enjoy life too) and teach them how to trade properly.
I'm not going to get into a deep discussion here but know this, almost all books on technical analysis and making money in the stock market are utter garbage!
It took me years to figure things out and still learning every day but trends tend to persist which is why it's better to look at weekly moving averages and MACDs than daily ones or minute charts.
For example, Nvidia's daily chart is a little bearish as price fell below its 50-day moving average:
But if you look at the 5-year weekly chart, price remains above its 20-week exponential moving average and weekly MACD over zero so it tells me to stay long as the trend remains intact:
Also, experienced money managers know we are entering year-end where everyone chases this year's winners to make their portfolios look better (FOMO season).
What else? You also need to understand the macro environment but not everyone agrees on this.
My friend quoted famous fund manager Peter Lynch at lunch: "If you spend 13 minutes a year on economics, you've wasted 10 minutes."
[Another good one by him: “Make your business so easy to run that it could be run by an idiot. Because eventually it will be.”]
Well, with all due respect to Lynch, Stanley Druckenmiller who boasts the best long-term track record in the money management business understands macro very well, so I tell young students of the market to understand their macro (I'll plug Trahan's Macro Specialist Designation here).
What does macro mean? Where are interest rates? Where are they heading? Why? How does inflation and labour markets figure into this? What about credit markets? How are they influenced? What is the role of monetary and fiscal policy in determining financial conditions? What about housing and the business cycle? And so on.
Admittedly, understanding macro isn't easy and even top experts like Druckenmiller have a hard time sometimes figuring it out but it's essential and adds to your risk toolkit.
Anyway, I'm getting way ahead of myself but I love two things: the US stock market and macro markets and in that order!
I can literally talk markets all day and can now hear my wife's voice in my head: "Get a life!"
But in all honesty, I can't wait for junior to turn 16 so I can start teaching him some basics.
Below, at this year’s Toronto Global Forum, John Graham, President & CEO of CPP Investments had a wide-ranging conversation with Goldy Hyder, President & CEO of the Business Council of Canada. The Forum is a platform for thought leaders to explore environmental and economic resilience, with a focus on fostering partnerships, encouraging investment opportunities, and inspiring future collaboration.
For John, navigating change is what makes his work interesting and engaging. He discussed CPP Investments’ journey to becoming one of the world’s top-performing pension funds, driven by a laser focus on its mandate, a conviction in investing for the long term, and a determination to resist FOMO (fear of missing out). A key takeaway: Finance is about investing in a system that is constantly in flux. It requires both quantitative and qualitative methods, art, and some science.
Listen to the full podcast here to learn more about John’s approach as leader of CPP Investments. I also embedded it below.
Moreover, i embedded Peter Lynch's wisdom on investing in stocks (buy your kids his classic, One Up On Wall Street) and a recent interview with Stanley Druckenmiller which is a must watch (interviewed by Nicolai Tangen, CEO of NBIM).
I wish all Americans a great Thanksgiving and will be back next week.
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