Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Weekly Wrap: Suze Orman quits TV gig, 5 ominous trends for retirees, how long to Findependence?

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orman
suzeorman.com

Interesting piece by financial TV guru Suze Orman about why she’s decided to quit her 13-year long TV gig. She sounds excited about moving on to whatever will happen after TV: clearly she’s ready for an equally exciting and influential encore career.

This week, MarketWatch zeroed in on 5 Disastrous Trends impacting future retirees. They are plunging savings rates, vanishing workplace pensions, lack of emergency  savings, rising life expectancies [see the Hub’s Longevity & Aging section devoted to this theme] and over dependency on Social Security and Medicaid.

Well, perhaps retirement is overrated anyway? That’s the stance Lawrence Solomon takes in a piece this week at the Financial Post: Here’s a Retirement plan — Don’t! This is more or less what we’ve been arguing all along here at the Hub. I call it the JKW Retirement Plan: JKW stands for Just Keep Working.

However, as I’ve also argued, just because you never plan to retire, doesn’t mean you don’t need to seek Financial Independence.  Findependence is always a desirable goal and the sooner the better. Retire by 40 asks the question How long will it take to achieve Financial Independence? It includes an interesting chart that reveals the hard reality: it all depends on your savings rate. If it’s low, it could take more than half a century to reach Findependence. If you could save 90% of your income it could take as little as three years. Note this observation:

The average retirement age in the U.S. is 62. That means most people have about 40 years to save and invest. If your saving rate is 5%, then you probably will not reach financial independence before retirement. Even 10% is iffy.

Well, maybe we’ll all be saved by robo advisers! Lots of press on them  lately, including the Hub’s piece Thursday. And in this weekend’s Wall Street Journal, Jason Zweig reports that Charles Schwab is going robo with automated advice. Maybe it’s time to dust off this old piece from Michael Kitces about Why robo-advisers will be no threat to real advisors.

This one is from February but for those who missed it in Roger Wohlner’s Chicago Financial Planner blog, it’s well worth reading: Why using your home equity to invest in the stock market is a bad idea.

The Christian PF blog has an enthusiastic book review of a book that’s already a NYT bestseller: Living Well, Spending Less. The reviewer notes that while it’s not a “Christian” book per se, it’s packed with scriptural references but should resonate with anyone in this materialistic culture: it’s all about decluttering, being content with what you have, cutting your grocery bill in half and more. A bit like the phrase “guerrilla frugality” in Findependence Day!

North of the border, Boomer & Echo takes a look at how the financial advice business is going to be shaken up by a term that may make your eyes glaze over: CRM2. Sounds like inside baseball but read why Robb Engen says CRM2 will usher in A New Age of Enlightenment for Investors.

 

 

Why investors and advisors should embrace Robo-Advisors

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Rick Hyde pic Mar 2015
Rick Hyde

 

By Rick Hyde, Founder & CEO, Ticoon Technology

Special to the Financial Independence Hub 

Open any financial publication these days and you’ll likely find an article about robo-advisors accompanied by an image of a robot doing something with your money – ‘The robo advisors have arrived” or “The rise of the machines” or “Invasion of the robo-advisors.”

Robo-advisors, a.k.a. automated portfolio management tools for retail investors, have most certainly arrived and they are poised to have a significant and, I would argue, largely positive impact on the investment business – both for advisors and investors.

The Meteoric Rise of Robo-Advisors

The top three US robo-advisors – Wealthfront, Betterment and Personal Capital – have each now topped the $1 billion mark for assets under management. And Continue Reading…

Canada’s still-world-beating high mutual fund fees

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robb-engen
Robb Engen, Boomer & Echo

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

We’ve been beating this drum for years now but a a new study by the Canadian Centre for Policy Alternatives suggests high mutual fund fees could cause Canadians to delay their retirement by as much as 11 years or else leave them with 40 per cent less money for their retirement.

The study compares the management fees charged by mutual funds and pension plans. It finds that in 2014 annual average pension plan fees were 0.38% of assets while comparable mutual fund fees were 2.1%.

Senior Economist David Macdonald, author of the report, says Canada has the highest equity mutual fund fees in the world:

“They’re so high that in order to offset those fees the average mutual fund investor will have to work until age 72 to match what a pension plan holder made by age 65, even with identical contributions.”

Canadians hold more than $1 trillion in mutual fund investments. This chart shows the largest mutual fund providers in terms of assets under management and compares the average MER of their funds: Continue Reading…

How are robo-advisers any different from global balanced mutual funds?

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Depositphotos_6444034_xsBy Jonathan Chevreau

I’ve long been baffled about why the plain-vanilla global balanced mutual fund has not done better in the marketplace.

As I note in my monthly online ETF column at the Financial Post (link below), a global balanced fund (or Global Tactical Allocation Fund) or their ETF equivalents give you exposure to all major asset classes, geographies and industries. You probably have at least two professional managers fretting on your behalf about the underlying stocks and bonds, rebalancing the asset classes, etc.

In short, a global balanced fund should in theory be the mythical “only fund you’ll ever need.” But in practice, and as I note in the column, show me even one investor who has 100% of their portfolio in just one of these funds. Talk about a black swan!

Taking it further, for all the media coverage that robo-advisers have garnered over the past year (and I’ve written a lot about them, both here at the Hub and elsewhere: put robo adviser in the search engine to the right to retrieve them), how exactly is an ETF-based robo adviser different than a global balanced fund?

Just asking! (And if you have the answers, feel free to post comments below.) The first person who can prove to me that 100% of their investment portfolio is in a single global balanced fund will receive a free signed copy of Findependence Day. I’m pretty confident no one will take me up on this offer!

You can find the full FP piece here under the headline (hey, it starts with my name!) Jonathan Chevreau: Where are the ‘robo-like’ Global Balanced ETFs in the Canadian market?

Earlier ETF columns

Links to the two earlier instalments of this new monthly column are highlighted below: Continue Reading…

Of harness racing and asset allocation

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Harness racing. Racing horses harnessed to lightweight strollers.
Harness racing: go Horse #5!

Here’s my latest MoneySense blog, which bears the headline When dividend investing trumps a balanced portfolio.

That’s an accurate depiction of the content but here at the Hub we’re sticking with the more offbeat headline used above. Because this column really does begin with a true story about harness racing in Florida.

How can that possibly relate to asset allocation and dividend investing? Click the above link to find out, or the Hub’s version below. And yes, the happy winner depicted below clutching a winning ticket is my wife, Ruth Snowden.

She’s known in her industry by that name. When we got married more than a quarter century ago she was concerned I might take offence that she didn’t want to use my surname in business circles. My response won’t surprise those who know us: “Honey, you can call yourself whatever you want as long as you pay half the mortgage!”. Of course, the mortgage has long been paid off, consistent with the Hub’s philosophy that “the foundation of Financial Independence is a paid-for home.” Continue Reading…