Tag Archives: investing

Sh*it my advisor says

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Some investors eventually leave their commission-based advisors and opt to set up a simple portfolio of index funds or ETFs on their own. There are plenty of compelling reasons to do so; the reduction in fees alone can save investors thousands of dollars a year, and academic research shows that the lower your costs, the greater your share of an investment’s return.

Related: Steak Knives, Yes. Financial Advice, Maybe Not

In my fee-only planning service, many clients end up doing exactly that. I always enjoy hearing the rebuttals from bank and investment firm advisors whenever they hear their clients want to move to a lower-cost portfolio. Here I’ve tried to capture some of that conversation with sh*t my advisor says:

Sexism: When my husband told him we’re choosing simple index investing and that I handle the family finances he smirked and said to my husband, “What credentials does your wife have to manage money?”

The real enemy: Our investment company is being vilified when the true villains are credit card companies with their interest rates.

Proof of concept: I have tons of clients with assets over $500,000 so I must be doing something right.

Working for free: My advisor told me she basically worked for me for free for the past eight years and accused me of dumping her just as my assets were growing.

It takes a professional: People think they can trade mutual funds or ETFs on their own but it’s not as easy as you think. Plus, you don’t have anyone like me to call up and ask if you’re doing the right thing. Re-balancing a portfolio is easy if you have the background, but doing it like you’re thinking about (indexing) is very tough without the training and knowledge.

What’s in a fee?: The fees are at 2 per cent (Ed. Note: actually, 2.76 per cent) because this isn’t just about buying and selling. We created a complete portfolio with you for your tolerance in the market and deal in actively traded mutual funds that most of the time outperform the market.

Nortel: ETFs aren’t all that great. When you buy an ETF you buy the whole fund. In the late 90s when Nortel owned 30 per cent of the TSX it crashed. If you purchased that ETF you’d be down 30 per cent too! But with a mutual fund you can’t buy that much. You are only able to purchase up to 10 per cent of any one company. So you would have been fairly safe with the crash of Nortel.

Downside protection: If the market goes down 20 per cent your ETFs will too. You are much more protected with mutual funds.

Apples-to-apples: All of our fees are wrapped up together in our MER. We do not charge account fees, transaction fees, advisory fees, admin fees or fees for our service. It is just the MER.

Clairvoyance: The bond market has likely reached its peak and appears to moving in a different direction. The equity markets are very risky at this time. In my mind the only safe place left is guaranteed deposits. Continue Reading…

Simple investing isn’t easy

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By Steve Lowrie, CFA

Special to the Financial Independence Hub

In my last post I covered why simplicity often beats complexity, especially when investing.  To quote myself:  “Simplicity is … the art of designing good, simple habits you can effectively implement and readily sustain.”  This keeps you on track toward your personal financial goals, with minimum fuss and maximum cost-management.

So why doesn’t everyone invest simply?  Because it isn’t easy.  We’re often done in by a host of human habits like fear, greed, loss aversion and herd mentality.  These and many other instinct-driven biases trick us into abandoning our good, simple plans whenever the next “all you need to do …” trend comes along.

“All you need to do is buy some dividend-paying stocks and you’ll have the income you need.”

“All you need to do is buy a few ETFs and you’ll be all set.”

“All you need to do is buy a couple hours of financial advice to get you up and running.”

While dividend-paying stocks, ETFs and hourly advice might still have valid roles to play in your plans, these sorts of “how to invest” fads shouldn’t override why you’re investing to begin with.  Plain and simple, your “why” should be guided by your long-term financial goals, like how much wealth you’d like to create or preserve over what period of time.  Your “how” should be grounded in robust academic evidence and time-tested solutions.

Unfortunately, the data tells us investors are often unable to take it easy on hyperactive trading.  For example, a 2017 Vanguard white paper, “Principles for Investing Success,” found that investors would move in and out of mutual funds and ETFs alike in reaction to market mood swings.  They’d also pile into and out of funds according to recent Morningstar ratings.  Instead of patiently embracing an efficient, long-term discipline, they were buying hot, high-priced funds and selling them low, after they’d cooled off.

Vanguard concluded (emphasis ours): “Investors should employ their time and effort up front, on the plan, rather than in evaluating each new idea that hits the headlines.  This simple step can pay off tremendouslyin helping them stay on the path toward their financial goals.”

Simple?  You bet.  Easy?  The evidence suggests otherwise.  That’s why I prefer to work with families upfront and ongoing with respect to their planning and investing.  That’s the only true way I know to ease their way over the long haul.

Steve Lowrie holds the CFA designation and has 25 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog originally appeared on his site on June 5, 2018 and is republished here with permission. 

If an investment sounds too good to be true, check these four things

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We recommend that investors follow an “evidence-based approach” with their investments.  What does the evidence tell us?  Investors should maintain globally diversified portfolios, keep costs low and select a mix of risky and safe investments that is suitable for their risk tolerance and financial goals.

Once a sensible portfolio is in place, holding on through the roller coaster ride of the market’s ups and downs is key to having a positive long-term investment experience.  One of the biggest reasons investors underperform market benchmarks or even the funds in which they invest is their inability to control the emotional urges which can easily lead to bad investment decisions which knock them off course.

Too good to be true

One temptation to which we often see investors succumbing is the “too good to be true” investment product pitch.  For example, many investments are sold as “equity-like returns with bond-like safety.” Upon closer examination a better explanation for such products is often “equity-like or higher risk with very uncertain returns.”

There are four key criteria that you can use to assess every investment opportunity that comes across your path:

  1. Expected Return
  2. Costs and Fees 
  3. Risks
  4. Liquidity (how quickly you can get your money back when you want it)

The only reason we invest is to earn a rate of return.  The rate of return compensates us for letting someone else have use of our capital rather than just leaving it in a high-interest savings account in the bank.  What type of return is reasonable?  Well, you shouldn’t be surprised to hear that the answer is “it depends!” And what it depends on is the other three criteria: the more risk, the higher the costs and fees and the more locked-up your money is, the higher rate of return you should expect. Continue Reading…

Oil pumping up returns for Canadian investors

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By Neville Joanes

(Sponsor Content)

We don’t just use it to drive. It’s in the roads we drive on. In fact, it is used in over 6,000 products that help make up modern life. “Oil,that is. Black gold. Texas tea …” And for a fossil fuel commodity supposedly going the way of the dinosaur, oil is looking pretty slick these days.

Oil hit $73 recently and then moderated down to a sweet spot in the mid-$60 range. But can $100 oil really be on its way down the pipeline? Spoiler alert: you might not be thinking big enough. $100 is just a number, not a cap.

As an example of the importance of oil to the Canadian scene, let’s look at the Horizons S&P/TSX 60 Index ETF, which holds the top 60 companies on the S&P 500 index as well as the Toronto Stock Exchange. (WealthBar holds HXT because it is an efficient way to have exposure to Canadian companies or businesses in our clients’ portfolios.) A significant number of those companies are energy producers (ie. oil companies). Indeed, on the TSX, nearly one fifth of the stocks represent energy companies.

Their success fuelled a bounce to a record high in late June. Oil is back — and that means Canadian investors (or at the very least, investors in Canada’s oil-fuelled economy), a steady pipeline of profits is bubbling up.

The recent history of oil. Before the boom, the bust

If you filled up your car recently, the dog days of oil might seem like a distant memory. But it wasn’t that long ago. Thanks to a glut of supply on the world market, oil was down at $30/barrel in 2016. How did it get so low? Mostly, fracking.

North American energy companies employed new technology techniques to bump up energy production by exploiting fields formerly deemed uneconomical. This reduced the need for importing oil from abroad.

The world did not adjust, at least not right away. Russia and the OPEC countries are addicted to revenues from exported oil. With few alternatives as a revenue pipeline, these nations had continued to pump oil even as the price was clearly sliding. Soon, the world had an ocean of cheap oil on its hands.

Moving forward to the dog days of August 2017 and that glut was still choking down the price per barrel. Note the final bolded conclusion in this Bloomberg article:

When OPEC and Russia first embarked on their strategy to clear a global oil glut, it was expected to succeed within six months. It now looks like the battle could last for years.

The Organization of Petroleum Exporting Countries and its partners plan to wrap up their production cuts next spring, already nine months later than originally expected. Yet oil prices are faltering again as data from the International Energy Agency show world inventories could remain oversupplied even after the end of 2018. ESAI Energy LLC predicts that, rather than months, draining the surplus may take years.

With oil priced so low, North American energy companies struggled to keep pumping. At the height of the crash, tens of thousands of Canadians, mostly in Alberta, lost high-paying jobs. By 2017, our Prime Minister was even talking about phasing out the oil sands.

But predictions of oil’s demise were premature.

Oil slides back from the brink

The rebound in oil happened a lot quicker than the experts expected. Today, it is welling up past $70/barrel. What happened? Supply met demand. Continue Reading…

The Case for Financial Assets over real estate

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Billy kicking back on Mexico’s Pacific Coast

By Billy Kaderli

Special to the Financial Independence Hub

When I was a stock broker in California — one of the hottest housing markets in the US — real-estate was my competition. “Everyone” was making money in real-estate, so why would they invest in the stock market?

I needed an angle

I went to the Board of Realtors and got prices for 2-, 3- and 4-bedroom homes in the area, both at the current price and for 10 years prior. I did the math to calculate what annual return these houses were creating for that ten-year span, then compared that to the S&P 500 Index for the same time period.

The index clearly beat all three home styles without the hassles of ownership. Now I had my argument to help people invest in the market.

Ok, that was then and this is now

Using Zillow.com I looked up what the home we used to own was now worth. It was listed at US$862K. Again I did the math and found that over the last 31 years since we bought it, that house has appreciated 6.4% annually. Sounds OK, except that there were property taxes, maintenance and repairs that would need to be deducted lowering that annual return.

Then, I wondered, what if we had put the money to buy our home into the S&P 500? So I calculated that figure also.

Are you ready?

It would be worth 3 million (US) dollars today! Over three times the current value of the home, as the Index produced a 10.46% annual return during those 31 years. Continue Reading…