All posts by Jonathan Chevreau

Poll finds most wonder how friends or neighbours can afford lifestyles

Posted By |

It’s one thing keeping up with the Joneses but a poll from Edward Jones finds that 61% of Canadians wonder how their friends or neighbours can even afford their lifestyles. This is especially so among Millennials (aged 18 to 34), 71% of whom felt this way, while 66% of Gen Xers aged 35 to 44 were curious to understand how those around them finance their purchases.

Seems to me this gives new meaning to the phrase The Millionaire Next Door, a popular book on how frugality is a key trait in building wealth. Typically, the kind of millionaires in the book live modestly and their net worth may not be obvious merely observing the size of a given home and/or what’s parked in the driveway. Conversely, it can also be that an apparent “millionaire next door” has no net worth at all but is fuelling their conspicuous consumption merely with debt.

Either way, it appears many of us are influenced by what our associates are spending their money on.

Sadly, the Edward Jones poll found that the pernicious practice of looking at the purchases of others may influence consumers to buy beyond their own budgets: a whopping 93% said they experienced buyer’s remorse after such purchases and admit to regrettable spending habits. Among Millennials, 96% experienced buyer’s remorse but so did 90% of baby boomers.

Among the types of purchases most likely to generate regret were tangible purchases, which were cited as a source of regret in 83% of cases. Clothing or shoes were regretted by 35% polled, jewelry by 28% and electronics by 26%. Millennials regretted spending on clothing/shoes in 47% of cases, while boomers were more likely to regret spending on jewelry (34% of them did).

While Millennials famously are supposed to value experiences over stuff, across the Canadian population, 83% regretted making impulse tangible purchases, versus 71% for experiential purchases.

Build spontaneous spending into your budget

So what lessons does this survey furnish for those seeking ultimate financial independence? “If you know you enjoy spending money spontaneously, build this into your monthly budget,” said Roger Ramchatesingh, Director, Solutions Consulting at Edward Jones in a press release issued on Monday, “When it is unplanned for, it can add up over time and hurt other long-term goals such as retirement or the purchase of a home.” Continue Reading…

Motley Fool: If you like FANG stocks, you should love Chinese BAT stocks in correction mode

Posted By |

My latest Motley Fool Canada blog was published Tuesday. It takes a look at the Chinese equivalents of America’s FANG (or FAANG) technology stocks. The FANGs have been surging ever higher this year although most came down Monday with Netflix as the latter’s subscriber growth disappointed somewhat. You can find the full MotleyFool blog by clicking on the highlighted (and self-explanatory) headline: If you like FANG stocks near their highs, you should love BAT stocks while China’s in a bear market.

Credited to Mad Money broadcaster Jim Cramer and RealMoney.com analyst Bob Lang early in 2013. FANG famously stands for Facebook, Amazon, Netflix and Google although some have added Apple to make it FAANG.

BAT stands for Baidu, Alibaba and Ten Cent. The influential weekly British newspaper, The Economist, recently had an interesting article comparing the BATs to the FANGs. (See FAANGs v BATs in the July 7, 2018 edition). The magazine described a titanic battle between these American and Chinese tech giants, which it said have a combined stock market capitalization of more than US$4 trillion.

Since the Motley Fool demands that writers disclose all their holdings mentioned in articles, I don’t mind stating here that I’ve long owned the FANGs as well as Apple, if only because my Millennial daughter twigged me to some of the names. I also bought Ali Baba on its IPO in 2014 but only bought into Baidu and Ten Cent this summer, in part as I researched this article (or was it the other way round?). As a rough analogy, I think of Ten Cent as China’s equivalent of Facebook, with a gaming kicker. Baidu is more or less a Google-like Chinese search play and Ali Baba has been characterized as being a type of Chinese hybrid of Amazon, Facebook and Google.

I would have to characterize these investments as speculations, so as the old saying goes, don’t invest more than you’re prepared to lose.

 

FP: A look at three retirement income planning software packages

Posted By |

My latest Financial Post column looks at a few retirement income planning software packages that help would-be retirees and semi-retirees plan how to start drawing down from various income sources: Click on the highlighted text to retrieve the full article: How you draw down your retirement savings could save you thousands: this program proves it.

There may be as many as 26 distinct sources of income a retired couple may encounter, estimates Ian Moyer, a 40-year veteran of the financial industry and creator of the Cascades program described in the article.

When he started to plan for his own decumulation adventure, five years ago, he felt there was very little planning software out there that was both comprehensive and easy to use. So, he hired a computer programmer and created his own package, now called Cascades.

While the main focus of the FP article is on Cascades, (available to financial advisors for $1,000 a year; do it yourself investors can negotiate a price directly), the article also references a couple of other programs we have looked at previously here on the Hub: Doug Dahmer’s Retirement Navigator and BetterMoneyChoices.com, the latter currently nearing the end of beta testing.

Dahmer has been writing guest blogs on decumulation here at the Hub almost since this site’s founding in 2014. See for example his most recent one, or the similar articles flagged at the bottom: Top 10 Rules for Successful Retirement Income Planning.

Dahmer says he’s pleased that others are waking up to the need for tax planning in the drawdown years: “Cascades provides a very good, easy-to-use introduction to these concepts.”

Planning for peaks and valleys in spending

Retirement Navigator’s Doug Dahmer

However, Dahmer would like an approach that doesn’t assume yearly spending remains relatively static: his Better Money Choices(available on line for $108 a year) allows for the “peaks and valleys” of spending as retirees pass through their Go-go to their slow-go and finally their “no-go” years.  Most retirees have to plan for sporadic large purchases like renovations or replacement of roofs or furnaces, plus of course vacations with widely varying price tags. Each spending peak represents a tax challenge, while the valleys are where the tax planning opportunities exist. Dahmer likens Better Money Choices to a gym monthly membership and Retirement Navigator to a personal trainer.

Personally, I found going through both firm’s programs a fascinating exercise, very much like putting together a jig saw puzzle. For me, Better Money Choices helps you visualize the final picture you’re trying to assemble, showing how much money you’ll need and when you’ll need it. Cascades provides vivid yearly snapshots of your year-by-year progress in putting the pieces together.

Vanguard Canada unveils low-cost actively managed mutual funds

Posted By |
Vanguard Canada’s Atul Tiwari

On the heels of its three asset allocation ETFs that shook up Canada’s investment industry in February, Vanguard Investments Canada Inc. today announced it will be providing four new low-cost actively managed mutual funds to the Canadian market.

The four new mutual funds are its first actively managed products for the domestic market: until now, it has been providing 36 exchange-traded funds (ETFs), with more than C$16 billion in assets. Vanguard says Canadians hold more than C $28 billion in Vanguard investments if you include both its Canadian products and its funds trading on US stock exchanges.

All four of the new active mutual funds are globally diversified: Vanguard says its management fees are about half that of the mutual fund industry average in Canada. (According to the Investment Funds Institute of Canada here, the average total cost of ownership of mutual funds for clients using advice-based distribution channels in Canada at the end of 2016 was 1.96% when taxes are excluded.)

IFIC has said these costs continue to fall and there’s little doubt Vanguard’s entry will accelerate the trend, and not a moment too soon, given last Thursday’s disappointing proposals from the Canadian Securities Administrators. (See the Hub’s roundup here or my Motley Fool Canada blog here).

In a press release distributed at 8 am Monday, Vanguard said the four new funds “feature global investment strategies from some of Vanguard’s longest-tenured sub-advisors” and complement its broad-based lineup of ETFs.

Vanguard Canada managing director Atul Tiwari (pictured) said “Vanguard has a deep 40-year history of active management expertise and we are excited to extend that to mutual fund investors in Canada, at a low cost … These mutual funds reflect our philosophy as an organization with a disciplined long-term approach and world-class investment managers that have worked with Vanguard for decades.”

Despite the fact The Vanguard Group Inc. pioneered index funds and low-cost passively managed investing (with more than US$5 trillion under management), it is also one of the world’s largest active managers, with US$1.2 trillion in global actively managed assets. The key contributing factors to successful active management are low costs, talent and patience, said Tim Huver, Vanguard Canada’s head of product.

Pricing varies with investment performance

Vanguard says it will use a unique pricing structure in the Canadian marketplace that aligns the interests of the sub-advisors with the funds’ investors. The maximum management fee for each mutual fund will be 0.50% and the management fee will vary up or down, up to that maximum amount, based on the investment performance of each fund.

 

Mutual Fund Maximum Management Fee First Year Management Fee
Vanguard Global Balanced Fund

 

 0.50% 0.38%
Vanguard Global Dividend Fund

 

 0.50% 0.34%
Vanguard Windsor U.S. Value Fund 0.50% 0.35%
Vanguard International Growth Fund 0.50% 0.40%

 

The first year management fee shown above is effective from June 25, 2018 to June 30, 2019. The funds will be available to financial advisors through Series F units and institutional investors through Series I units.

Canadian investors currently hold $1.5 trillion in mutual funds, according to Tiwari. “Vanguard has a long track record of lowering investment costs in the areas in which we operate, so we see providing greater choice and lower costs to a broader group of investors as very positive.”

More on the four actively managed global mutual funds Continue Reading…

Overhaul of mutual fund fees not as sweeping as some would like

Posted By |

Deferred Sales Charges (DSC) on mutual funds are going to be eliminated in Canada but recommendations released today by securities regulators did not go so far as to implement an outright ban of trailer commissions (aka trailer fees, also referred to as embedded compensation.)

The Canadian Securities Administrators (CSA) also released proposals regarding rules about what advice or products are in the “best interest” of financial consumers.

 

You can find a full summary in this article that appeared today in the Globe & Mail. (The full link may only be available to G&M subscribers, depending on how many free views readers have previously accessed). Rob Carrick also has a column on the topic titled It just became clear we’ll never see an investment industry where clients must come first. Well, we’ll see. Over at the Financial Post, Barbara Schecter reports OSC drops push for adviser standard.

Big win for industry

For more of an industry perspective, there is a full report here at Advisor.ca. And the industry’s newspaper, Investment Executive, headlined its coverage as “a big win for the industry.”

John De Goey

One of the sources cited in both G&M articles is John De Goey, an investment adviser and author, who also sent this email to the Hub expressing his disappointment in the decisions:

“This is shameful on the part of the CSA.  It has been almost 15 years since Julia Dublin’s Fair Dealing Model drew attention to the concern of bias caused by embedded commissions.”  He also offered these four observations:

  • The primary concern is advisor bias as caused by embedded compensation, and there’s nothing here to address that
  • Does not allow for “product meritocracy”
  • Does not address how the trailing commission on equities is double the trailing commission on income (which creates obvious, massive, self-evident advisor bias)
  • Does nothing to address the discrepancy between ETFs and mutual funds.  Advisor’s preferred business model should never drive product recommendations

 

Vanguard says industry will organically evolve away from embedded compensation

Vanguard Canada’s Atul Tiwari

However, Vanguard Investments Canada Inc. managing director Atul Tiwari said Vanguard is “encouraged by some of the proposals from the CSA. Although there will not be a ban on embedded commissions, we believe that the Canadian market, like other regions around the world, will organically evolve away from it. The CSA has made clear that suitability determinations will need to be in the best interests of clients. This will likely accelerate the move that we are already seeing in advisors going from commission-based to fee-based models. We support that trend as providing superior fee transparency and enhancing the use of low cost products to give clients better long term returns. Vanguard will continue to champion the interests of Canadian investors with more low-cost and high-quality product options.”

And finally, my take on this at the Motley Fool

(Added on Friday afternoon): You can find my own take on this development in my monthly blog at Motley Fool Canada. Click on the highlighted headline here: New mutual fund advice guidelines underwhelm advocates for Consumer-Investors.