All posts by Jonathan Chevreau

G&M: 3 programs to chart your Retirement income & spending

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The Globe & Mail newspaper has just published a column by me describing our family’s experience with three Canadian retirement planning programs available to consumers. You can find the full article by clicking on the highlighted headline here: Three online programs to help plan out your finances in Retirement.

These programs vary in price from $85 to more than $800 but just a single insight from any one of them will likely recap the modest fees. I found all three (or four actually) quite useful, seeing as I have already turned 65 and my wife Ruth will follow suit next summer, at which point she too will abandon full-time employment for the kind of semi-retirement or financial independence that this website focuses on.

Some of the planning packages are designed for financial advisors to work with their clients but all can be obtained by individual consumers. They are all strong on the financial side and the first step with any of them is to enter data into your personal computer (PC or Mac, or any device via the cloud). You’ll need your brokerage statements, pension benefits statements if any, tax returns and a good grip on your monthly expenses, which means credit-card and bank statements, and maybe charitable contributions and any other regular expenses not gathered by the foregoing.

Just as important, you need to have at least a rough picture of what your future golden years will be spent doing once you’re no longer tethered to full-time employment.

Decumulation can be more challenging that Wealth Accumulation

All these programs are good at projecting your future retirement income and taxes, factoring in the many moving parts of CPP payments, OAS clawbacks and the other minutae that make the “Decumulation” phase of retirement planning perhaps even more challenging than what the long Wealth accumulation process was.  As Retirement Navigator creator Doug Dahmer (a regular contributor to the Hub) often says, tax is perhaps the single biggest expense in Retirement.

There’s an art to deciding which income sources to drawn down upon first (registered, TFSAs, non-registered), or to deciding whether to defer corporate or government pensions till 70, while drawing on savings in the meantime.

But it’s not just about money: these programs help you identify how you’ll navigate the three major phases of retirement: the early “go-go” years where you may indulge in expensive travel and other hobbies; the “slow-go” years where you pull in your oars a bit and stick closer to home; and finally the “no-go” years where one or both members of a couple start to confront their mortality and deal with rising healthcare costs and perhaps a shift into a retirement or assisted living facility.

Here’s the capsule summary of the strengths and weaknesses of each. The highlighted text in Red will take you to the respective websites: Continue Reading…

Questrade pushes envelope on lower fees with Questwealth Portfolios

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Questrade’s TV commercials put pressure on fees, as do its new Questwealth Portfolios

As my latest MoneySense Retired Money column explained when it was published early Saturday morning, Questrade Inc., the leading independent Canadian online brokerage, is laying down the gauntlet on fees. You can find the full story by clicking on the highlighted headline here: Questrade’s new robo advisor service showcases rockbottom fees.

For consumers, it’s good news that the new iteration of Questrade’s Portfolio IQ robo adviser service — rebranded Questwealth Portfolios — pushes fees down to around the level of the new Vanguard Asset Allocation ETFs.

That’s somewhere between 0.20% and 0.25%, which is roughly half of what most other robo services charge, and about a tenth of what most retail mutual funds charge.

Questrade Wealth Management was one of three early entrants to the Canadian robo advisor space in 2014 (along with NestWealth.com and Wealthsimple). Until now, its robo service was called Portfolio IQ (PIQ henceforth) but the latter has been rebranded, relaunched and indeed replaced as of Saturday under the new trademarked name Questwealth Portfolios. Questwealth replaces PIQ accounts, according to a press release issued on Nov. 3.

The management fee is 0.25% for Questwealth Portfolios between $1,000 and $99,999, dropping to a very competitive 0.20% for $100,000 or more. These fees are significantly lower than for PIQ, which charged 0.7% under $100,000, 0.6% between $100,000 and $249,000, 0.5% up to $500,000, 0.4% up to $1 million and 0.35% for accounts of a million dollars or more. The average asset-weighted PIQ fee was 0.62%, versus 0.23% for Questwealth Portfolios, lower by a whopping 63%.

For consumers it’s good news that Questrade is slashing its own fees and putting more pressure on the rest of the industry, which is evident from its edgy TV commercials. (With the launch it is releasing a new batch of these often-humorous ads. The screen shot at the top of this blog is from the earlier ads.

How Questwealth Portfolios compare to other Robo services

As I note in the MoneySense column it’s not hard to show how ETFs and robe-based portfolios of ETFs can undercut the notoriously high MERs of Canada’s mutual funds, so the real contest is how the Questwealth Portfolios stack up against the rest of the robo advisors (or indeed, against DIY ETF portfolios held at discount brokers like Questrade itself or any of its (mostly) bank-owned online brokerage arms. Continue Reading…

Motley Fool on Market Cycles: How worried should investors be?

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Talk about strange timing! Last weekend, right before this week’s sharp market sell-off, the Motley Fool Money podcast featured an interview with Howard Marks, the influential money manager at Oaktree Capital. Marks has just released his second book, Mastering the Market Cycle, which I promptly bought and downloaded on Kindle and read over the (Canadian) Thanksgiving weekend.

Subtitled Getting the Odds on Your Side, the book is only Marks’s second, following the 2011 publication of The Most important Thing: Uncommon Sense for the Thoughtful Investor. What was clear about the podcast and the book is that Marks felt that the current market cycle is closer to a top than bottom. In fact, late in September Motley Fool Money’s lead podcaster Chris Hill titled a blog “How worried should we be about Howard Marks’ Market Caution Warning?”

Cautious Optimism

Maybe a little, it turns out, although at the time of that podcast Marks’ mood was one of “cautious optimism.” Since then the market seems to have shifted a bit more from optimism to caution. As it happens, Wednesday’s 800-plus plunge in the Dow occurred just two days after I personally started to rebalance our portfolios, partly inspired by my weekend reading, so the new book was quite relevant.

Book publishing being what it is, and with much of it largely written in 2017, Marks doesn’t come right out and declare that the market is near a top; authors tend to be aware that books need to stand up for a few years. However, a quick look at his web-based market commentaries underline his cautious approach. As Hill pointed out in his conversation with Tim Hanson, Marks’ memos may not be quite as well known as Warren Buffett’s, but he nevertheless has a strong following.

At age 72, Marks has seen more than his share of market cycles and claims to have been able to profit from most of the biggies: from the 1999 Tech Wreck to the 2007 Global Financial Crisis. In fact, he’s been around long enough to remember the famous Nifty 50, which were perhaps analogous to today’s mania for FANG stocks. Continue Reading…

Retired Money: the glut of books about Trump and prospects for Boomers’ retirements

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As the yellow highlights show, books about Donald Trump now dominate the New York Times’ non-fiction bestseller lists

As my latest MoneySense Retired Money column recaps in depth, roughly half of the top ten New York Times bestselling non-fiction books are about the Donald Trump presidency. You can access the full column by clicking on the highlighted headline here: How Trump’s policies are affecting my investment choices.

Soon after the 2016 election that brought Trump to power, my financial advisor and I would exchange emails about the latest books: initially biographies and warnings and then in the last year the current glut of books about the actual presidency and the administration.

I’m normally a fan of biographies and love him or hate him, it’s hard to ignore the life of Donald Trump, considering that everything he says or tweets can impact us all. Yes, he may or may not be a threat to the looming Retirement of the baby boom generation of which he is on the leading edge, but his hair-trigger temper and proximity to the nuclear codes gives us something more to fear than merely our financial survival.

Some of the books I mention do give some insights into the implications of this presidency for the global economy and stock markets. Others are mere political diatribes from the left or the right, while still others are more salacious tell-alls. Stormy Daniels, I’m looking at you! (The book is titled Full Disclosure.)

As the column mentions, there are a number of books written by rabid left-wingers who are convinced Trump is a serial liar and a treasonous sellout to Russia president Vladimir Putin, but there are also several written by conservatives and republicans who are more sanguine about it all. In the latter camp I’d include Conrad Black, Ann Coulter and David Frum, plus a few titles from FOX news personalities who are obviously sympathetic with “The President,” as they like to refer to him.

Crazy crazy or Crazy like a fox?  Continue Reading…

Vanguard: The hidden $1.3 trillion player in active management

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Vanguard’s Daniel Wallick addresses financial advisors at 2018 Vanguard Investment Symposium

While the Vanguard Group is best known for being a pioneer of index mutual funds and exchange-traded funds, it also happens to be one of the world’s largest practitioners of active management. In a presentation Tuesday in Toronto that is taking place across the country, Vanguard executives said the US$5 trillion of money it manages worldwide includes $1.3 trillion in active management.

Vanguard Investment Strategy Group’s Head of Multi-Asset Portfolios, Daniel W. Wallick, presented financial advisors with a framework for constructing portfolios that combine active and passive approaches to investing. The heart of Vanguard’s approach remains broad cap-weighted indexes (or so-called Beta), which is what Vanguard says it means when it uses the term “indexing.”

For many investors, the broad diversification, low costs and tax efficiency of its mainstream index funds and ETFs may suffice.

But, depending on the desired complexity, Vanguard can incorporate “factors” like momentum, value, or liquidity, all factors that have shown a persistency for generating alpha (outperformance) over long periods of time. Beta and Tilts (to for example, overweighting the home country or large market caps) can be combined for the single most important task of Strategic Asset Allocation but overlaying this can be the addition of potential “Alpha” sources like Security Selection and Timing.

“Strategic asset allocation through market-cap-weighted indexes makes for a powerful tool,” Wallick said. And over 10-year periods, asset allocation policy continues to be the biggest source of variations in returns. Asset allocation explains 86% of return variation in 303 Canadian balanced funds tracked by Vanguard, 91.1% of 709 balanced funds in the U.S., 80.5% of 743 balanced funds in the UK and 89.1% of 580 balanced funds in Australia.

Cost trumps talent, patience is crucial

The 3 keys to successful active management = long-term performance

Vanguard sees three keys to successful active management: Cost, Talent and Patience. Wallick described the in-depth process Vanguard uses to select subadvisors for its actively managed funds but hiring talent has to be within strict cost-control parameters.

“Cost is a powerful indicator of future alpha.” But once the talent has been identified and hired, patience is required: Vanguard research over 15 years found that of 2,200 initial funds, 22% survived and outperformed, 24% survived but underperformed, and 54% did not survive. But even among the 22% that survived and performed, 98% of them underperformed in at least four years.

By focusing on both low costs and rigorously overseeing actively managed subadvisors, Vanguard multi manager funds have outperformed their Lipper peer-group averages by various percentages: 78% of them over 1 year, 83% of them over 3 years, 76% of them over 5 years and a whopping 100% over 10 years.

Factor-based funds vs traditional active funds

There is a half-way position between traditional beta-based Style index funds and ETFs and traditional active funds. The former (Beta) provide low cost, low turnover and lower tracking error while traditional active funds provide the opportunity to add alpha, albeit at a higher cost, potentially greater volatility, and less transparency and control. Between these are factor-based funds and ETFs, which provide consistent targeted exposure as well as low cost, but may have higher tracking error and potentially higher turnover. Continue Reading…