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Out of the Fire and into the Frying Pan

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By Noah Solomon

Special to the Financial Independence Hub

Why We Seek the Advice of Experts

In many aspects of our lives, we defer to the judgement of experts, whether they be doctors, lawyers, or investment managers. People rely on experts’ training, experience, and intuition, which should enable them to make better decisions than lay people in their respective fields. Unless you graduated from medical school, it would be inadvisable for you to self-diagnose. Similarly, one would think that professional investors possess the knowledge and expertise to achieve superior results than their clients could achieve on their own.

Out of the Fire and into the Frying Pan

We readily concede that in most cases, experts are capable of making better decisions than their non-professional peers. However, the simple fact is that experts are not as logical and unbiased as you may believe. Specifically, there is a robust body of academic literature spanning over 60 years that clearly illustrates that experts produce worse results than data driven rules-based models.

In 1982, James Simons, an award-winning mathematician, founded investment company Renaissance Technologies (RenTec). The firm strictly adheres to mathematical and statistical methods and is regarded as the most successful hedge fund in the world. Its signature Medallion fund is famed for having the best investing record in history, returning more than 66% annualized before fees and 39% after fees over a 30-year span from 1988 to 2018. Simons stated:

“If you do fundamental trading, one morning you feel like a genius, the next day you feel like an idiot … by 1998 I decided we would go 100% models … we slavishly follow the model. You do whatever it [the model] says no matter how dumb or smart you think it is. And that turned out to be a wonderful business.”

Simons’ sentiments are echoed by legendary investor Ray Dalio. Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund, and is regarded as one of the greatest innovators in the finance world. Over the last 20 years, Bridgewater’s Pure Alpha Fund has delivered a near 20% annual compound return before fees. Dalio believes that everything can be analyzed and quantified. He stated that 99% of the time he agrees with the output of Bridgewater’s quantitative investment models. He also confessed that on the rare occasions when he has disagreed with the machine, it was right 66% of the time.

Experts? We Don’t Need No Stinkin’ Experts!

It seems logical that someone with an MBA from a top business school and decades of experience can beat a rules-based model. The expert’s hypothesis, which asserts that experts outperform models, is predicated on the following statements:

  1. Experts have access to qualitative information.
  2. Experts have more data.
  3. Experts possess intuition and experience.

In theory, these attributes should result in superior decisions and results. However, the evidence demonstrates that these alleged advantages are anything but. There is an abundance of anecdotal and empirical evidence that suggests that the three pillars underlying the expert’s hypothesis not only fail to translate into superior decisions, but generally tend to lead to inferior results.

More Is Less, both in Football and in Markets

Intuitively, having access to more information should lead to better decisions. However, studies have shown that the opposite is likely to be the case.

Meredith Whitney became famous for predicting the banking crisis of 2008. In a December 2010 segment of 60 Minutes, she outlined her gloomy forecast for the municipal bond market, stating that there would be 50 to 100 sizeable defaults. Continue Reading…

11 practical ways Retirees can learn more about Personal Finance

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What is one way a soon-to-be retiree can learn more about personal finance?

To help retirees further their education on personal finance, we asked financial experts and business leaders this question for their best insights. From finding targeted podcasts to taking a class, there are several practical ways for a retiree to learn more about personal finance.

Here are eleven ways retirees can learn more about personal finance:

  • Find Podcasts targeted at soon-to-be Retirees
  • Use Online Resources
  • Look to a Financial Planner for Guidance
  • Lookout for Blogs
  • Join a Group
  • Assemble a Support Team
  • Speak to the Professionals
  • Non-profit Organizations
  • IRS Elderly Benefits
  • Read, Read, Read
  • Take a Class

Find Podcasts targeted at soon-to-be Retirees

There are plenty of great podcasts out there sharing incredibly useful information on retirement, although many these days are on retiring early, which may or may not be you depending on where in your financial journey you are (not to mention your age range!)

This is why it can really help for soon-to-be retirees to find podcasts targeted at their specific circumstances. One good example is Finishing Well with Hans Scheil, which covers all sorts of topics on retirement planning. You may also want to consider the podcast Retirement Answer Man hosted by Roger Whitney. A Certified Financial Planner, Whitney covers both the money-related aspects of retirement as well as some other questions on this stage of your life that you may have. –– Anna Barker, LogicalDollar

Use Online Resources

There are a number of online resources a soon-to-be retiree can make use of in preparation for this next big step in their life. It’s never too late to learn or improve your personal finance skills. I would urge retirees to get on YouTube and search for personal finance videos aimed at retirees. There is, no pun intended, a wealth of information in these videos about what steps to take and which actions to avoid to keep your head above water as you enter retirement. — Carey Wilbur, Charter Capital

Look to a Financial Planner for Guidance

The best thing you could do for yourself in preparation for retirement is going to a financial planner who can help you organize and explain your financial situation. Hopefully, you’ve been preparing for retirement in the form of something like a 401k, but if you haven’t, a financial planner can help to explain your options: which is what you need plenty of. The financial planner will likely emphasize the realm of tax efficiency, which is typically what matters most to people who are retired. If you want to do some independent research, I would look into literature discussing tax-loss harvesting, rebalancing your portfolios, and back-door Roths (while they last). — Tom Mumford, Undergrads

Continue Reading…

Is it ever too early to start thinking about Retirement Income Planning?

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By Ian Moyer,

Co-founder & President of Cascades

(Sponsor Content)

We normally think about it in the few years leading up to the “Retirement Date,” but should we be crunching the numbers at other times?

The short answer is yes and here is when: preceding a change in career or a shift to part time, following a large increase or decrease in annual income. You may also wish to take the measure of a move from salary to self-employment, or upon the death of a spouse or following a divorce.

It is important to keep in mind the difference between Retirement Planning — the amount of money you will have accumulated by a specific retirement date — and Retirement Income Planning, which is the income that you will derive from that accumulated cash. Those are the numbers that really matter and represent the income you will want to live on (and sustainably so) for the rest of your life.

The following commentary is from a user of Cascades software and highlights her specific number-crunching situation:

I am currently in my early fifties, but I had already been worrying for several years about how much I needed for my retirement and how best to plan for it. As academics, we often assume our pension is sufficient: if we are even tenured, as many of us are not; if we have been working at a decent salary for many years, as many of us have not; and if we have been taught to think about or plan for retirement, as most of us have not.

As I spoke to my colleagues, I began to realize that the problem of not planning was widespread. One colleague (and friend) told me she did not even know what an RRSP was. Another colleague and friend revealed she never considered saving money in a TFSA. Still another had no idea what her pension was because she had worked at four different Universities, and so her pensionable earnings were scattered across these institutions.

Going to the bank to gain some insight and assistance was not much better. The bank, one of the largest in Canada and the one with which I have dealt since I was eighteen years of age, could not have been more disappointing. Most institutions are comfortable taking your money to invest it, but they are considerably less interested in helping you plan what to do with it. It’s not just an egregious oversight, it’s bad customer service. So, the bank with which I work did some preliminary planning, but it was largely unsatisfactory. How would I know how much I would have upon retirement? What were the sources of income I could rely on? How long would the money I saved support me? I still had no idea. Continue Reading…

Why Innovation promises to be a consistent tailwind for Healthcare sector leaders

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Photo courtesy Harvest ETFs/Shutterstock

By Paul MacDonald, CIO, Harvest ETFs

(Sponsor Content)

As the MRNA winners of the COVID-19 vaccine race turn their sights to illnesses like shingles and the flu, investors and analysts are renewing their focus on innovation in the healthcare sector. If a technology like MRNA can conquer endemic illness and even go on to combat cancer, what other lifechanging innovations could the healthcare sector provide us with? What opportunities could those innovations open for investors?

The healthcare innovation story is wider, deeper, and richer than MRNA to me. The healthcare sector has been innovating since human beings first started to treat illness. It is a sector built on the use of the scientific method to develop novel solutions to new and ancient problems of human health. Healthcare companies, by nature, push the limits of human knowledge to heal people. That means innovation in the space is a near-constant.

In the healthcare sector large-cap companies play an outsized role. These firms have the scale to innovate a wide range of products and services on their own and are well positioned to capture value from innovations initiated by smaller-scale companies. Our view that these large-caps serve as the fulcrum of healthcare innovation underpins the Harvest Healthcare Leaders Income ETF (HHL).

When we think about large-cap healthcare, we have to see these companies as innovators. They are always innovating on their own, but they’re also the companies that have the ability to extract value from innovation by smaller-cap firms in the sector.

Within HHL we own the dominant companies in the sector, companies with tremendous R&D platforms across subsectors.

How one ETF captures a universe of healthcare innovation

Those subsectors include pharmaceutical companies finding new avenues for MRNA, but they also include the biotech companies like Abbot Labs using phones to better monitor diabetes patients and the med-tech companies like Stryker developing robotic surgery assistants to power less-invasive operations with better outcomes. They even include healthcare providers like United Health, using and developing new technologies to provide better and more efficient patient care. HHL is set up, through a basket of 20 of the best large-cap healthcare companies, to capture healthcare innovation in almost all its forms.

That diversity of innovation is why a large-cap ETF like HHL is so well positioned in the space. We should emphasize that healthcare innovation will generally follow one of two paths. The first is that headline-grabbing, game-changing, blockbuster innovation. That would happen when one company is able to completely change the outcomes for an illness or condition that hasn’t seen much significant improvement. A major leap in Alzheimer’s treatment would be one such blockbuster. Continue Reading…

Book Excerpt: Lessons on Mastering Money

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By Fred Masters

Special to the Financial Independence Hub

We are in the midst of a personal financial crisis in this country from coast to coast to coast.  The Bank of Canada has been sounding the warning alarm for years that Canadians are taking on way more debt than they can afford.  Many are suffering in silence since we just don’t talk about money, and we certainly don’t teach about it.

The goal of my book Lessons on Mastering Money is to empower you – Canadian adults in their 20s and 30s ─ with the core personal financial literacy knowledge needed to control your money on your life’s personal financial journey.

No one should care about your financial well-being more than you.  Delegating your financial decision-making to another person, such as a family member or an advisor, leaves you financially blind.  You need to be able to ask the right questions and stay involved in the conversations; you need to be at the table so as to understand the decisions.

Success in any organization can often be traced back to strong leadership.  Surely, you have witnessed this in your life in countless settings.  Once you view your financial life as a very, very important business, then you will instantly recognize that you must put steps in place to financially prosper. Look in the mirror: the person staring back at you owns your financial success.

Mere Hope isn’t going to cut it

By the way, ‘hoping’ for the best financial outcome isn’t going to cut it; you need to understand the financial game because you play it every day of your adult life, and this is one game that we can all win!

There are many personal financial hurdles to overcome in life.  Three of the biggest financial tests are saving enough for retirement, saving for the kids’ education and solving the housing-affordability puzzle successfully.  These three are crucial.  You MUST pass all three of these major financial tests or you will struggle mightily with your financial life: getting just one right or even two of the three right is just not good enough.

You need to get 100% right on this test, and this book provides help with all three of these pieces.  Saying that Canadians struggle with debt is a total understatement; there’s help here for this too.  A recurring mistake that many Canadians make financially is leasing a brand-new car: there’s guidance around this also.  Getting a handle on how you think about and approach your personal finances – your money mindset ─ is really bedrock learning; all good financial decisions lead right back to this. The book begins by teaching you these key money mindset lessons.

6 major thematic sections

The format of the book aligns with the biggest personal financial hurdles that Canadians face.  It is broken down into six major thematic sections: Continue Reading…