All posts by Jonathan Chevreau

With $100 billion in assets, can ETFs catch mutual funds?

Posted By Jonathan Chevreau | June 7, 2016

My latest Financial Post column can be found in the print edition of Wednesday’s National Post as well as online right now, under the title The market share battle between ETFs and mutual funds is heating up, as Canadian ETFs pass $100 billion milestone.

As noted earlier here on the Hub, the ETF (Exchange-traded Funds) industry recently passed the significant milestone of $100 billion in assets under management. See ETFs break $100 billion milestone in Canada. That’s “Billion” with a B, but is still less than 10% of the $1.1 Trillion (Trillion with a T) that the entrenched and much older mutual fund industry still enjoys.

As an aside, if you have difficulty grasping how big the number “Trillion” is then read a hub post by Ian Campbell: Can you put the number ‘Trillion’ in context?

The FP column asks the question why the huge disparity in Management Expense Ratios (MERs) of mutual funds (i.e. high at around 2.5% per annum) versus ETFs (typically around 0.55% but in some cases as low as 0.4 or 0.5%) hasn’t resulted in even more incursions by the ETF industry into the mutual fund space.

Powerful bank distribution network

One reason is the entrenched positions of the Canadian banks, whose powerful distribution network (i.e. bank branches)allows them to sell their own in-house no-load mutual fund families. Of course, BMO, RBC and now TD all sell ETFs as well but I doubt you’ll see many recommended by your local friendly branch rep any time soon.

As the old saying goes, mutual funds are sold, not bought. Continue Reading…

Book Review: Ready to Retire?

Posted By Jonathan Chevreau | June 6, 2016

There’s no shortage of books that focus on financial readiness for retirement. But what about emotional or psychological readiness for retirement? Lyndsay Green’s just-published Ready to Retire? (Harper Collins, Toronto, 2016) puts a microscope on the less-scrutinized emotional and lifestyle issues of retirement. She interviewed 44 Canadian males and 17 of their spouses about common retirement fears (for those still working) versus the reality of retirement once it’s actually achieved.

Generally, these males either planned for retirement or – in the all-too-common case of sudden terminations – found themselves unexpectedly in the land of retirement years or even decades before they expected it.

But whether planned or not, most required a period of adjustment that can take years: not surprisingly, retirement is right up there with divorce, death and job loss in creating a traumatic new stage of life.

Mental Map depicts common emotions about Retirement

The book’s frontispiece conveys the common emotions in a graphic that I think should have been the cover. ( Continue Reading…

Book Review: Blockchain Revolution

Posted By Jonathan Chevreau | June 1, 2016

Technology guru Don Tapscott, together with his investment banker son Alex, makes a bold claim on the subtitle of the pair’s just-published book, Blockchain Revolution (Penguin Canada, Toronto). They promise that the “technology behind Bitcoin is changing money, business and the world.”

Certainly Bitcoin and Blockchain technology are something anyone in the financial services industry needs to pay attention to. The first of seven chapters on Transformations is devoted to reinventing the Financial Services Industry, which the authors dub “the world’s second-oldest profession.”

The global financial system supports a global economy worth more than $100 trillion, making it the world’s most powerful industry and foundation of global capitalism, the authors write. And yet, with some of it still running on 1970s mainframe computers, close up the financial system is a “Rube Goldberg contraption of uneven developments and bizarre contradictions.”

If ever an industry were ready for disruption, this one would appear to be it. In an interview at the book launch, Alex Tapscott told me that true “fin tech” (financial technology) is based on the blockchain. And blockchain itself is what The Economist magazine dubbed “The Trust Machine.” Accordingly, the Tapscotts’ book begins with a chapter titled The Trust Protocol.

Distributed Ledger Technology

Upgrading technology in the Victory Lap

Posted By Jonathan Chevreau | May 23, 2016

One of the key elements of the post-corporate Victory Lap Retirement lifestyle is self-employment. If this begins in your late 50s or early 60s, you’ll be living on multiple streams of income. Some of it may be passive, such as pension income (I draw from two modest corporate pensions, for example) or non-registered investment income, but a big component is continued earned income.

If you are no longer a salaried employee, it’s probably best to set up a sole proprietorship or even incorporate. I’ve always run a corporation alongside salaried employment and have found that once you’re fulltime in business for yourself, It’s hard to generate as much pre-tax income as a salaried corporate job does. However, there are significant compensations in time and flexibility, plus the net after-tax proceeds of self-employment are relatively more attractive than being a fully-taxed-at-source salaried employee.

One reason is the allowable deductions or “write-offs” for legitimate business expenses, which may include certain computer equipment, software and some services. Obviously you should consult with a tax professional and engage an accountant because you don’t want to trigger an audit from the Canada Revenue Agency. After all, it’s clear the new Liberal government regards self-employment with suspicion: my guideline is to “assume an audit” and act accordingly.

Time to upgrade equipment

I am writing this article on brand new equipment that replaces products that were as old as six years. My fiscal year-end is the end of May and it’s been a decent year revenue-wise, so it seemed like a good time to book some legitimate expenses. Those whose calendar year-end correspond with their fiscal year (i.e. Dec. 31st) would go through this process at the end the calendar year.

In my case, apart from the tax considerations of booking valid deductions, it really was time to upgrade the single most important business tool I use, which was an Apple MacBook Air.

After six years the machine had just about used up its storage and processing capacity and I had begun to lose significant chunks of time rebooting and closing applications. Continue Reading…

Climb into a higher tax bracket — and save money

Posted By Jonathan Chevreau | May 19, 2016

MoneySense.ca has just published the second instalment of my new Retired Money columns. Click on the highlighted headline for the full piece: Climb into a higher tax bracket — and save money.

Yes, the concept may seem at first blush a bit contradictory but strange things can happen when you’re in the netherworld between full-time employment and full-stop retirement.

A period of semi-retirement (or what we call Victory Lap Retirement in an upcoming book I’ve written with Mike Drak) brings with it various opportunities to pay a little more tax than necessary while you’re “basking” in a relatively low tax bracket, in order to pay a lot less tax once those large RRSPs grow into even larger RRIFs and their forced annual (and taxable) withdrawals once you reach age 71.

One of the sources for the piece is Emeritus Financial Strategies’ Doug Dahmer, a Hub contributor who has penned many blogs on this theme, most of them housed in the Decumulate & Downsize section. Doug is pictured to the right.

Check out some of his earlier Hub guest blogs:

Debt is more than a four-letter word during your drawdown years.

Timing of CPP Benefits: Get both a bird in the hand and two in the bush.

A Rare Breed of Financial Planner.