All posts by Graham Bodel

4 sensible financial literacy books as gift suggestions

Santa Clause putting a shiny Christmas present into a stocking. Isolated on white.Want to give the gift of financial literacy to a loved one this Christmas?

We have a few stocking stuffer ideas,  following the just-completed Financial Literacy Month in Canada. Throughout November,  there were lots of articles out there on the importance of financial literacy and even more opinions about how to improve it.

Some argue for it to be taught in schools:  aren’t our schools stretched enough for resources as it is?  Some say parents should make it a priority to teach their children about money but many parents struggle with money concepts themselves and “do as I say, not as I do” isn’t always convincing.  Many argue very credibly that the financial services industry in Canada generally works to separate people from their money rather than to educate them about how to best grow their money.

We’re not sure what the answer is but agree it’s an important subject.  If you’ve already read David Chilton’s The Wealthy Barber and are ready to move on to the next step, here are a few investment books that are sensible and concise.

*We first published this list in February 2015 and have received positive feedback!

1) The Investment Answer – Daniel Goldie and Gordon S. Murray – 2011

The Investment Answer – Daniel Goldie and Gordon S. Murray – 2011

Publisher summary:

“What if there were a way to cut through all the financial mumbo-jumbo? Wouldn’t it be great if someone could really explain to us–in plain and simple English–the basics we must know about investing in order to insure our financial freedom? At last, here’s good news. Jargon-free and written for all investors–experienced, beginner, and everyone in between–The Investment Answer distills the process into just five decisions–five straightforward choices that can lead to safe and sound ways to manage your money.”

2) The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns – John C. Bogle – 2007

The Little Book of Common Sense Investing- The Only Way to Guarantee Your Fair Share of Stock Market Returns – John C. Bogle – 2007

Publisher summary:

“Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game. Common sense tells us-and history confirms-that the simplest and most efficient investment strategy is to buy and hold all of the nation’s publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns. To learn how to make index investing work for you, there’s no better mentor than legendary mutual fund industry veteran John C. Bogle.”

3) The Empowered Investor: A Canadian Guide to Building a Better Investment Experience – Keith Matthews – 2013

The Empowered Investor- A Canadian Guide to Building a Better Investment Experience – Keith Matthews – 2013

Publisher summary:

“With The Empowered Investor: A Canadian Guide to Building a Better Investment Experience, author and advisor Keith Matthews answers the call for a clear, intelligent guide for Canadians looking to invest wisely. Dispensing with jargon and hype, The Empowered Investor is an easy-to-read finance and portfolio management book that offers a down-to-earth treatment of a complex subject with an accessible style that will appeal to novices and experts alike.”


4) Exchange Traded Funds for Canadians for Dummies – Russell Wild and Bryan Borzykowski – 2013

Exchange Traded Funds for Canadians for Dummies – Russell Wild and Bryan Borzykowski – 2013

Publisher summary:

“The fast and easy way for Canadians to understand and invest in ETFs – Exchange-traded funds (ETFs) are an increasingly popular part of the investing landscape, being less volatile than individual stocks, cheaper than most mutual funds, and subject to minimal taxation. But how do you use this financial product to diversify your investments in today’s ever-changing market?

Exchange-Traded Funds For Canadians For Dummies shows you in plain English how to weigh your options and pick the ETF that’s right for you. It tells Canadian investors everything you need to know about building a lean, mean portfolio and optimizing your profits. Plus, the book covers all of the newest ETF products, providers, and strategies, as well as Commodity ETFs, Style ETFs, Country ETFs, and Inverse ETFs. The only book on the market catering specifically to Canadian investors.”

5 more suggestions

Editor’s Note: For a list of  5 more financial book suggestions, read this article from Saturday’s Financial Post: Here’s a look back at some of the best personal finance and economics books of 2016.

graham-bodelGraham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original ran November 29th here

Sorry but this is one broken record worth listening to …

Needle head and broken vinylLast month S&P Global published its 2016 mid-year SPIVA Canada Scorecard, which compares the performance of actively managed Canadian-based mutual funds with their benchmarks.

The conclusion is clear: actively managed funds, after fees, underperform their benchmarks over time.  Investors may be better served using passively managed alternatives such as index tracking mutual funds and exchange traded funds (ETFs).

This evidence is so consistent and presented so often it almost sounds like a broken record, but given how many Canadians still pay high mutual fund fees for under-performing funds, we believe it’s a broken record still worth listening to.

Before we dive into the data, it’s worth noting a few important methodological points highlighted by S&P:

  1. The study compares the performance of each fund to that of a benchmark selected to provide a sensible “apples to apples” comparison.
  2. The survey looks at both “asset-weighted” and “equal-weighted” average fund performance and the conclusions drawn are similar.
  3. The study accounts for “survivorship bias”, that is it includes funds that were closed or merged with other funds over the relevant time period.

Many funds don’t even survive, let alone outperform

This last point is really important.  According to the study, only 58% of Canadian Equity funds actually survived the last 5 years.  One can only assume that those funds that didn’t survive were not stellar performers.  US and International Equity funds fared a little better with 70% of US funds and 84% of International funds surviving the full 5 years.

So how many funds survived and outperformed their benchmark?  In the Canadian Equity category, only 29% of actively managed funds outperformed their benchmark over the last 5 years.  Those aren’t very good odds considering that it’s nearly impossible to predict in advance which funds are likely to outperform.

Diversifying outside Canada important, but performance of active US and International Equity funds is worse

The Canadian stock market is fairly concentrated in certain industries and specific large cap stocks so it’s important for Canadian investors to diversify outside of Canada.  Unfortunately those looking to diversify using active US and International Equity funds won’t be happy with the SPIVA results.  Only 14% of International Equity funds outperformed their benchmark and 0% (yes, none!) of US Equity funds outperformed their benchmark over the 5-year period.

So maybe you’re feeling lucky and think your Canadian Equity manager has some sort of advantage and will be one of the lucky out-performers.  Once you look to diversify outside of Canada (and you should) the odds drop dramatically (and infinitely in the case of US Equity managers!)

The study only takes us to half-way through 2016.  We wonder how active fund managers have fared through the latter half of the year with such tumultuous events as the US election.  Given that most market pundits not only didn’t predict the outcome of the election correctly but missed how the market would react in response leads us to believe that when the next SPIVA scorecard is published, the same old broken record will still be spinning.

The data speaks for itself but we’ll conclude by saying that when you invest in “the market” by holding passive investment funds or ETFs, you get the market return with a fair degree of certainty. You will not experience the additional uncertainty of whether your chosen active fund will outperform or underperform the market.

Peer reviewed academic data shows that over longer periods of time very few active funds are able to outperform the market and those funds that do are nearly impossible to identify in advance.  The fees for passive investment funds and ETFs are much lower than those for active funds. Again, active fund management comes with lower average investment returns after fees and less certainty of performance versus the market.

graham-bodelGraham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original ran last Friday (November 18th) here. 


Are your investing goals different after the U.S. election?

President Elect Donald Trump

We’ve been doing a lot of reading leading up to and since the election: as you’d expect there is no shortage of opinions of what is going to happen to financial markets and how investors should position themselves as a result.

The investing opinions vary as extremely as the political views.  We’ve read crazy things and some very sensible things.  Perhaps the best articulation of how to approach this was written by Ron Lieber  in the New York Times on Wednesday when he asked, “Are your goals different now?”

“Once upon a time — like, say, last week — you had an investing plan that was based on goals that may come years or decades from now. Perhaps you’re hoping to buy your first home. Maybe you’re trying to save enough to send a couple of children to college. You hope to retire by age 67.

Has any of that changed? If it hasn’t yet, then it’s not clear why your investments should.”  – Ron Lieber, New York Times

Big events happen and market volatility sometimes accompanies. That doesn’t mean you should try to guess the market’s reaction. As Lieber hints, changing your investment strategy to either protect you or try to take advantage of market volatility can be a sucker’s game.  At best you’ll get lucky: at worst you’ll fall victim to many of the psychological pitfalls that leave most investors, both individual and institutional, chasing the market to the detriment of their investment performance. Speculating and investing are very different things. You are an investor and investing successfully is a long term game.

So what should you do?

1.) Ignore the noise

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Educate yourself about fees and reap the benefits!

Impact of high investment fees on a TFSA portfolio. Explanation towards end of this blog.

Last month, the British Columbia Securities Commission (BCSC) launched an investor education campaign targeted at helping investors better understand the fees they pay. There simply can’t be enough education around this issue and we absolutely applaud their efforts.

Its website is a great source of information and education and this latest campaign showcases some new tools and guides that any investor would find helpful. There are even some new TV ads which would be kind of funny if the subject matter wasn’t so serious.

New regulations came into effect on July 15 of this year which require investment advisors to provide better disclosure about their compensation. Rather than simply show percentage fees, compensation and other charges will have to be shown in dollars and cents. We expect investors to suffer a fair degree of sticker shock next year when everyone will start receiving these new mandated statements.

New statements won’t show all fees

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Starting is Hard, Doing it is Easy: 9 ideas to get you started

The secret of getting ahead is getting started - famous American writer Mark Twain quote interpretation with pink notes on vintage carton board

Starting is hard.  Doing is easy.  Even when it comes to the hardest things, starting is harder than actually doing the hard thing.

For the most important things, or the things where we have the most to gain, starting is the hardest thing.

If things are really easy to do, if they’re important, starting is hard.

Why is that?  Maybe we’re afraid of the consequences if we fail.  Maybe we’re afraid of the consequences if we succeed. After all, what would we fret about all day if all our “to do’s” were done?  Who knows where or why but as the proverb goes, “there is an enemy within.”

And if this enemy shows itself in areas which are important or where we have the most to gain or lose – it probably manifests itself as often as ever when it comes to the following:

  • relationships
  • personal fulfillment
  • exercise
  • diet
  • finances

These are all big areas where we could stand to gain a lot if we get things right!  And the longer we delay starting, the more it stresses us out – we sit in a paralytic trance, waiting for inspiration to hit us and it just never happens.

Perhaps breaking larger goals into smaller, more tangible steps might help, or at least it might trick you into doing something that sends you in the direction of progress.  While we don’t proffer advice in many of the above areas and in fact struggle as much as anyone,  we think the following smaller steps might help get you on the road to sorting out your financial house.  We’re sure there are more but here’s 9 to start:

9 smaller ideas to move you towards getting your finances in order

1.) Make sure you have an up-to-date Will, Power of Attorney designation and Health Directive.

2.) If you have people that depend on you, get insurance to make sure they’re taken care of if something happens to you – term life insurance is relatively cheap and pricing is fairly standardized.

3.) Pledge allegiance to the following mantra: “By far the most important thing I can do to ensure long term financial success is to live within my means.”

4.) If you have children, be sure to open a Registered Education Savings Plan (RESP) and invest enough to get the maximum Canadian Education Savings Grant (CESG)….free money from the government (need we say more?).

5.) If your company has a retirement savings program with matching contributions, it’s usually a good idea to contribute enough to get the maximum match.

6. ) Open a Tax Free Savings Account (TFSA).

7.) If you have investments, grab a pen and piece of paper and write down what you’re invested in, why and how much you pay annually in fees.

8.) If you can’t do number 7 without turning on your computer, educate yourself – we recommend the following Sensible & Concise Investment Books

9.) If these steps still seem overwhelming, find someone qualified and independent to help you.

Postscript –  if you’re interested in digging a little further into the enemy within, please read Steven Pressfield’s The War of Art.  He calls the enemy Resistance and it’s very real and very, very scary…..

graham-bodelGraham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original ran late September here