|Archived Articles • 2005|
We spend the year accumulating wealth. Now is a good time to share it with those who are less fortunate. A time for giving: Act like a saint but think like an investor.
The Longest Discipline [Efficient Frontier, Dec05] "Make no mistake about it: over the very long term, precious metals equity should provide your portfolio with a mean-variance boost. Just be sure that you’re prepared for the long term -— the very long term -— behavior of this asset class."
Disclosure could come knocking on charities' doors [Globe and Mail, 20Dec05] "Unlike every publicly traded company in Canada and every non-profit group in the United States, Canadian charities are not required by federal regulators to disclose compensation... Many observers say it's time charities disclosed executive compensation since they receive indirect taxpayer support and some operate almost like large corporations, paying their CEOs six-figure salaries plus bonuses and other allowances."
Mean Reversion, Forecasting and Market Timing [John Norstad, Dec05] "Long horizon stock investing appears to be much riskier than most people believe. Predicting future stock returns and timing the market appear to be much harder than most people think... Risk is real, and attempts to dismiss long horizon risk via naive popular beliefs in strong RTM, accurate forecasting, and infallible market timing are misguided, most likely the result of our common sense being 'fooled by randomness.'"
Index-linked Savings Certificates [UK NS&I, Dec05] "Inflation-beating savings – with no tax to pay. With our inflation-beating Index-linked Savings Certificates, the value of your investment increases in line with inflation and earns guaranteed interest rates – with all your returns tax-free. So you can be sure to keep ahead of rising prices."
The December dilemma [Financial Post, 10Dec05] "To buy or not to buy? That is the question often posed by mutual fund investors in December, fearful of buying funds in a non-registered account and then being forced to prepay tax on 'someone else's gains.'... Let's take a closer look at the mathematics of distributions to try and quantify the actual cost of this tax prepayment." See also Decoding tax bill for year-end pay-outs.
Battle of the Binge [Kiplingers, Dec05] "You buy a risky stock impulsively. You beat yourself up over an investment that's losing money, but you can't bear to sell it. You know you should stash more away for retirement, but you never get around to it. For most investors, these types of seemingly irrational, shortsighted decisions are nearly as automatic as flinching when a bug hits the windshield. But with the help of a new branch of science, called neuroeconomics, investors can learn how to resist their self-destructive tendencies."
Aging Brings Wisdom, but Not on Investing [NYTimes, 04Dec05] "Do people generally become better investors as they age? Unfortunately, new research has found that the answer is no... Because every age group in their study trailed the market, the researchers believe that all investors should favor index funds, which mirror the performance of the market and don't attempt to beat it. This advice becomes increasingly important as investors grow older."
Fund Indexers, Take (Another) Bow [WSJ, 04Dec05] [If link is dead, search Archive for "clements", then select Dec 04 article.] "Again and again in this column, I have argued that most stock-mutual-fund investors won't earn market-beating returns and that these folks would be better off buying market-tracking index funds. It turns out, however, that your chances of outpacing the stock-market averages are far slimmer than even I imagined. What's the problem? Most performance-hungry investors don't own just one actively managed fund. Rather, they own a whole fistful of funds -- and with every fund they add, the odds against them grow steeper."
Risk by any other name is loss [Financial Post, 03Dec05] "Fred Kirby believes in calling a spade a spade. In an extensive article titled Investment Risk from the Client's Perspective, published in the prestigious U.S.-based Journal of Financial Planning, the Canadian fee-only financial planner tackles the forbidden topic of losses head-on."
Retirement on the Installment Plan: A Less-Risky Way to Buy Annuities [WSJ, 23Nov05] "It takes a lot of nerve to sink a huge chunk of your wealth into a single annuity... William Bernstein, an investment adviser in North Bend, Ore., figures there's a better solution: Buy annuities in annual installments."
Clients often overestimate risk tolerance [Financial Post, 21Nov05] "'Studies of investment behaviour show that the financial markets are not the cause of investment plan failure; rather, it is the investors themselves who cause the failures.' That's taken from an excellent new book, All About Asset Allocation. It's by CFA Richard Ferri, with a foreword by William Bernstein, author of The Intelligent Asset Allocator."
The art of low-cost investing [Financial Post, 19Nov05] "Hebner's basic premise is 'capitalism works' and retail investors can get the fruits of capitalism by investing in the various stock market indexes for the long term. 'The only time you should sell is if you come to the conclusion capitalism does not work, or if you need the money,' he said in an interview."
iShares € Inflation Linked Bond [BGI UK • Nov05] "The investment objective of this fund is to provide investors with a total return, taking into account both capital and income returns, which reflects the return on the government-inflation linked bonds of the EMU."
Too Much Capital [Efficient Frontier, Nov05] "I, for one, do not despair our low-return world. Who in their right mind would trade the standard of living today, at almost any point on the map, for that of fifty or a hundred years ago? Who would prefer to deal with the horrors of the widespread rural poverty of 1900 or the specter of Hitler and Stalin in the 1940s than with jihadi terrorism or identity theft? The price we pay for this sanguine state of affairs is derisory expected returns. An agreeable piper indeed, and one well worth paying."
Some funds risky in RRIFs [Toronto Star, 12Nov05] "Cashing in segregated funds before maturity will make your guarantee null and void. If you are more than 60 and facing a deadline to convert your RRSP within 10 years, beware of the RRIF withdrawal rules — and plan your finances accordingly."
ETFs provide access to the world of bonds for the retail investor [Globe & Mail, 04Nov05] "It's never easy to buy bonds in small, retail-sized amounts without getting hosed a couple of points in commission... Like bond funds, [ETFs] never mature, but you can trade in and out cheaply, and they charge much less in management fees than do bond mutual funds, a mere 0.25 per cent... I think the revamped XGV is a fiendishly clever instrument for the retail bond investor."
Post-Modern Portfolio Theory [FPA Journal, Sep05] "Modern portfolio theory and its mean-variance optimization model don't realistically reflect how investors experience risk. Post-modern portfolio theory more accurately gauges risk through its downside risk optimization."
Paid for Performance, and Freed From the Herd [NY Times, 23Oct05] "A recent study... found that performance incentives have had a significant and salutary influence on the buying and selling decisions of fund managers... Securities regulators typically have taken a jaundiced view of pay-for-performance among mutual funds, based on the idea that such compensation may encourage fund managers to incur too much risk."
Bay St.'s rich secret: churning income trust funds [Globe & Mail, 15Oct05] "Income trusts can be gorgeous investments. Between the yield and the capital gain, you can bag a 30-per-cent annual return. But you might be less excited about the juicy profits if you knew how much the Bay Street underwriters were skimming off the top, the bottom and bits in between."
Advice to advisers: Put it in writing [Toronto Star, 09Oct05] "Harold Geller is a litigation lawyer with an unusual specialty. He sues financial advisers for malpractice. This gives him the ability to see where financial advisers run into trouble with clients. Lack of communication, he says, is the main reason why relationships break down... Geller's final advice to clients: Don't rely on the fairness of large financial institutions or regulatory organizations if you run into problems."
How Fund Rankings Can Cause Stocks to Gyrate [NY Times, 09Oct05] "Mutual funds regularly make transactions that can set boom-and-bust cycles into motion. One such transaction is a 'fire sale,' which the researchers define as occurring when a fund must sell a stock very quickly, regardless of price. Another move, called a forced purchase, is the reverse: it occurs when a fund must buy a stock right away... Investors can exploit these patterns, even though the data on mutual fund holdings is several months out of date, the professors say."
Five Money Ideas That Really Add Up [WSJ, 09Oct05] [If link is dead, search Archive for "clements", then select Oct 09 article.] "What follows are, I believe, the five most important concepts in investing. If you aren't using them in your portfolio, I think you are making a big mistake."
Vanguard Slashes Costs to Keep Fidelity, Barclays From Its Turf [Bloomberg, 03Oct05] "On a hot July morning, Vanguard Group Chief Executive Officer John Brennan says he's found another way to save money: recycling old stationery. 'How much is it going to save us?' he asks. 'Fifty bucks? It's the client's 50 bucks, so why wouldn't I do that?' And forget lunch in the executive dining room at Vanguard's Malvern, Pennsylvania, campus. There isn't one."
Monkey Business [SmartMoney, 22Sep05] "Markets are efficient enough that if you decide you want a certain asset allocation, you decide to invest passively, it's difficult to beat that performance at the market level. Indexes will beat three-quarters of active managers. If you look at a global portfolio, if you actively manage each of 10 asset classes, chances are you'll lose. To win in one asset class, you can be lucky and beat the index. But if you're an investor, you need to beat the benchmark in at least seven or eight of the asset classes if you're investing in 10 to 15 asset classes. The chances of doing that are close to zero."
Fund reform hits the courts [MarketWatch, 20Sep05] "Plaintiffs argue that the fund industry's explosive growth has generated economies of scale that fund managers are not sharing with all investors. Instead, the benefits are shared primarily with larger investors, or favored institutional clients, or simply pocketed by insiders, all of which is a violation of the fiduciary duties imposed by the 1940 act."
Charmed Vipers [MarketWatch, 19Sep05] "The Vanguard Group has created a unique structure for its exchange-traded funds, and any competitor considering a copycat product will have to get the mutual-fund giant's permission first."
How David Swensen beats the market -- and why you can't [Financial Post, 10Sep05] "You and I cannot do what Mr. Swensen does because we're not smart enough, and we're not disciplined enough: We're almost certain to make classic mistakes such as chasing after fads, buying at the peak and selling during downturns. And when we aren't screwing ourselves, the mutual fund industry's high fees for sub-par returns will be more than happy to do so on our behalf."
Learning from Leonard Cohen's mistakes [Toronto Star, 06Sep05] "His predicament can teach us about some mistakes and perils to avoid in our own lives. We should realize it's risky to rely on verbal agreements and to give others — even dear friends or family — unsupervised control of our bank accounts, property or important financial decisions. We should be wary of elaborate transactions we do not understand, and advice from professionals whose interests or loyalties may be in conflict with our own. Finally, lawsuits are costly and uncertain."
10 Questions for John Bogle [TIME, 04Sep05] "He is a hero to investors and a royal pain to money managers. Thirty years ago, John Bogle founded the Vanguard Group and invented the index fund--a low-cost option that revolutionized investing. At 76, he's still an iconoclast, most recently in The Battle for the Soul of Capitalism, which is coming out this fall."
Portfolio Doctor's risk tolerance quiz off to a slow start [Toronto Star, 04Sep05] "Assume that you had a $100,000 portfolio allocated 50 per cent in equities. Let's also assume that you invested it in early 2000, just before the market dropped 30 per cent. How would you feel about that loss? How would your partner, mate, significant other feel about it? Don't surmise, ask him or her."
Build your own income fund [Globe and Mail, 27Aug05] "Consider the idea of creating your own monthly income fund. All you need are an on-line brokerage account and a degree of comfort with the idea of buying your own securities. The benefit of buying yourself is that you'll be in a position to get higher returns from your income investments than the typical fund would provide."
Are fund investors protected? [Toronto Star, 27Aug05] "Allegations that about 42 per cent of reported assets have been embezzled from two Quebec mutual fund families have sent shivers across Canada. 'If such a thing could happen at one mutual fund company, what protection is there for my mutual fund investments?' many investors are wondering. Well, there's none at the moment, apart from the capital and public reputation of the owner of the fund management company itself."
Divide and dither [Globe and Mail, 26Aug05] "The Investment Dealers Association of Canada, one of the multiple regulators that oversee my business, looks like a crazy fire station to me--first trying to prevent fires, then fighting blazes after they start while also running a store out back selling matches and gasoline..."
Gambling Monkeys Compelled by Winner's High [LiveScience, 22Aug05] "When given a choice between steady rewards and the chance for more, monkeys will gamble, a new study found. And they'll keep taking risks as the stakes rise and dry spells get longer. The research, in which scientists also pinpointed brain activity during the gambling, could provide insight into the human penchant for risk. "
S&P/TSX index outpaces managed funds [Globe and Mail, 12Aug05] "Over the past five years, only 43 per cent of Canadian equity fund managers beat the returns posted by the S&P/TSX index... Annual management expense ratios of 2.5 per cent 'are a huge hurdle for any manager, no matter how skilled they are, to consistently have to overcome to deliver value-added over and above what a[n] . . . indexing strategy delivers.'"
For internal use only [Financial Post, 08Aug05] "The nasty big secret of the retail full-service business is that the payout policies of most firms still reward production more richly than any of the other things the industry talks about: portfolio management, financial planning, or plain good service. Rookie brokers quickly learn that the way to stand well with the branch manager is to qualify for the list of top producers published monthly in the branch, not by helping clients get the best possible return on their investments."
BGI announces first style-based international ETFs for U.S. [and Canuck] investors [Yahoo, 05Aug05] "BGI announced today that the iShares® MSCI EAFE Value Index Fund (NYSE:EFV) and the iShares® MSCI EAFE Growth Index Fund (NYSE:EFG) began trading on the New York Stock Exchange. Each fund's expense ratio is 0.40%."
Lessons From The Brain-Damaged Investor [WSJ, 21Jul05] "People with certain kinds of brain damage may make better investment decisions. That is the conclusion of a new study offering some compelling evidence that mixing emotion with investing can lead to bad outcomes."
A little savings grace [Scott Burns, 17Jul05] "Has your financial planner told you to save more? He may be dead wrong. He isn't alone. Most of the models used for retirement planning may also be wrong for the same reason. How can this be? Easy. The models and their supporting software are based on false assumptions about our spending and how it changes as we age." See also Reality Retirement Planning.
Warren Buffett Q&A [Motley Fool, 13Jul05] "I know more about business and investing today, but my returns have continued to decline since the 50's. Money gets to be an anchor on performance. At Berkshire's size, there would be no more than 200 common stocks in the world that we could invest in if we were running a mutual fund or some other kind of investment business."
How the Finance Gurus Get Risk All Wrong [Fortune, 06Jul05] "The inapplicability of the bell curve has long been established, yet close to 100,000 MBA students a year in the U.S. alone are taught to use it to understand financial markets. For those who teach finance, a number seems better than no number—even if it's wrong."
The Get-Rich-Slow Scheme [Business Week, 24Jun05] "The truth is it's a lot easier to get rich -- and stay rich -- today by going it slow rather than latching onto a get-rich-quick scheme. Best-seller lists are clogged with books that explain in great detail how to Start Late, Finish Rich, or become The Millionaire Next Door. But much of the advice boils down to some pretty simple rules to live by. Here are five steps to slowly gaining the kind of financial security most people only dream of."
The Big Picture Is Revealing [Wall Street Journal, 19Jun05] [If link is dead, search Archive for "clements", then select Jun 19 article.] "Most folks wouldn't dream of sinking half of their wealth into a single investment or borrowing money to buy stocks and bonds. Yet many already are. We all engage in 'mental accounting,' viewing our home, mortgage, mutual funds, stocks, bonds, bank accounts, auto loans and credit cards as totally separate from one another. But every so often, it's worth stepping back and looking at the big picture. If you do that, you will get a better handle on how much risk you are taking -- and you may discover simple ways to boost your overall investment return."
Insurers warned about conflicts [Toronto Star, 09Jun05] "Consumers may have reason to doubt whether the advice they receive about insurance is in their best interests, a national committee of regulators has warned. Many insurers make loans to brokers, have ownership links and offer sales bonuses like extra commissions, cruises and golf tournaments that may cause consumers to doubt the independence of sales advice, observes an Industry Practices Review Committee."
The Quantitative, Data-Based, Risk-Massaging Road to Riches [NY Times, 05Jun05] "Cliff Asness, on the other hand, is an outspoken, exuberant Ph.D. in financial economics who has built a public reputation for his willingness to write and say what's on his mind. In academia, he's known for the witty, biting papers he writes for such publications as The Financial Analysts Journal... Among financial journalists, he is known as a cogent and articulate bear... And among the hedge-fund cognoscenti, Asness has become known as someone who has been thinking hard thoughts about the future of hedge funds."
Hang Tough as the Market Turns [Wall Street Journal, 05Jun05] [If link is dead, search Archive for "clements", then select Jun 05 article.] "If you combine indexing's relative certainty with an awareness of investor mistakes, you will find it easier to hang tough through the inevitable short-term market turmoil -- and you are more likely to stick around long enough to notch the impressive long-run gains that stocks can deliver."
Simply Stephen [Toronto Star, 05Jun05] "Executives are greedy, investors are oppressed by predators, securities regulators are ineffectual and U.S. President George Bush has exploited a single terrorist attack the way Adolf Hitler demonized Jews for political ends. The sort of controversial and fearless attacks on the ruling class have made Stephen Jarislowsky a darling among business reporters for years, but at 79 he is now attracting book readers with a curious mix of biography, investment tips, sermons on ethics and social commentary."
OSC town hall turns angry [Globe&Mail, 01Jun05] "Of the hundreds of people who attended the meeting, dozens spoke to the panel about what they see as a collection of securities regulators all unable or unwilling to protect small investors."
The Inflation Protection You Can't Get: In Search of an Indexed Annuity [WSJ, 25May05] "An inflation-indexed annuity can be a solution to two problems that loom large in later life -- the risk of outliving your financial resources and the risk of inflation steadily eroding your purchasing power. It 'is arguably a product that people should want,' says Jeffrey Brown, a finance professor at the University of Illinois at Urbana-Champaign. 'I would want part of my portfolio to be in some form that is both annuitized and protected from inflation.'"
The Arithmetic of Mutual Fund Investing is More Important Than Ever [BFMRC, 24May05] "We are left with one certain conclusion: investors who ignore costs are courting failure; investors who control costs are maximizing their chances of success. The long-term differences in the wealth they accumulate will be truly staggering. Why? Because for the former group, the magic of compounding returns is overwhelmed by the tyranny of compounding costs; for the latter group, the magic of compounding returns stands almost on its own."
The best Canadian investment blogs • Part 2 [MoneySense, 19May05] "Several of the Web sites on the list are members of the Financial Webring, a linked collection of Canadian Web sites aimed at the do-it-yourself investor (replete with discussion forum). Our hats go off to the ring: it's a refreshing alternative to brokerage firms, newsletters, media and other sources of investment information."
What price a piece of advice? [Globe&Mail, 14May05] "To have a productive conversation with an adviser about fees, you need to know the various options out there and how they compare in price. Consider today's column a quick briefing on this important topic."
Don't hold breath for MER changes [Toronto Star, 14May05] "As long as the biggest slice of the MER pie goes to the fund managers and advisers, don't hold your breath for major change among the big players. 'Really big reductions would have to involve cuts on management fees and what's paid to advisers,' Hallett said. 'That kind of stuff takes a long time. I just don't see that in the cards at this point.'"
The Problem With Indexes [Thoughts from the Frontline, 13May05] "Can we improve on cap weighting? Absolutely! Any index that is replicable, objective, and focused on large and liquid companies which are easily tradable is a potentially useful index. Any such index that is valuation-indifferent should beat the stock market. If it doesn't care what PE ratios are or what the price is when setting how large your investment in an asset should be, it should beat cap weighting."
Gag Orders: Purchased Silence [FundLibrary, 04May05] "Gag orders perpetuate asymmetric information, with ordinary Canadians at the bottom of the food chain. Surely, allowing the cover-up of incompetence, fraud and criminality is not in the spirit and intent of the Securities Act."
Mutual fund price war the first rumble of an industry shakeup [Globe&Mail, 03May05] "The end is nigh for high and opaque MERs. Funds are no longer going up like they did in the boom years. Fund redemption rates are growing. AGF, AIC, Fidelity and Altamira all reported net redemptions in March... Fund companies need to fight harder to make investors happy and one way to do that is to cut a fund's sticker price, the MER, while giving them confidence that it will not go up 10 seconds after the fund is purchased."
The Diversified Dividend Aristocrats [IndexUniverse.com, 02May05] "Standard and Poor’s rolled out new dividend-focused indexes in both the U.S. and Europe that offer a diversified approach to high-yield investing. Called the “Dividend Aristocrats,” these new indexes promise to significantly expand the playing field for dividend investors"
Journal of Indexes • 2nd Quarter 2005 [May05] Topics include tax efficiency of ETFs, bond indexes, increasing sustainable retirement withdrawal rates using international diversification and costs still matter.
Why the Baby Boomers Won't Wreck the Market [NY Times, 24Apr05] "You've probably heard the predictions that a prolonged bear market will begin as the baby boomers retire and sell their stocks. While the historical record provides some support for such a view, a new study suggests that the consequences of the population's aging will not be anything nearly that bad."
Efficient Market Hypothesis for Dating? [Greenspun, 17Apr05] "Applied to romance, the Efficient Market Hypothesis says that if the guy were actually worth dating one of the millions of women who live within a 30-mile radius of his house would have figured it out."
Changes that help, changes that hurt [Globe&Mail, 16Apr05] "Tax expert Tim Cestnick lists the key tax changes that took place for 2004. Some changes will help you when filing your 2004 tax return, but some will hurt. One thing's for sure: These are changes you shouldn't ignore." P.S. The filing deadline this year is Monday, May 2.
Efficient Frontier • Spring 2005 [Apr05] The Nature of Risk ["Disturbing, to say the least. None of the biggest common-sense risks of owning equity are particularly well priced by the market."] and Why You Can't Afford a House in San Francisco ["Home prices and rents do not exist in a vacuum, and the factors that influence them are blindingly simple: the mortgage rate and the salaries of those in the market. Where these two critical values go, so go rents and home prices eventually."]
Have a chat on-line [Globe&Mail, 09Apr05] "Financial Webring's discussion forum is a big draw, but there's also a menu of linked websites operated mainly by expert individual investors who know their stuff... Because they're anonymous, on-line discussion forums are sometimes a gathering place for anti-social types who are opinionated, quick to anger and prone to over-the-top language. Unless a discussion forum is properly moderated, these people can ruin things by burying the useful comments from other participants. Financial Webring and the other forums mentioned here appear to be well run."
S&P launches independent Canadian bond index [Reuters, 01Apr05] "Standard & Poor's has launched Canada's first independent bond index, tracking 901 issues with a total market value of C$608 billion... The index will take its pricing information from CIBC World Markets and RBC Capital Markets and compete against the Scotia Capital Universe Bond index, which is currently the dominant Canadian bond index."
Pension autopilot: Private accounts are too risky. [Financial Post, 22Mar05] "The cited behavioural problems can be addressed though an "autopilot" approach that ensures adequate, regular contributions go into individual accounts that are appropriately invested. The cited agency problems can be addressed by fostering the creation of well-governed, not-for-profit institutions of sufficient scale to be able to operate at very low unit costs."
What a Steadfast Contrarian Says Now [Wall Street Journal, 20Mar05] [If link is dead, search Archive for "clements", then select Mar 20 article.] "While Mr. Arnott remains downbeat about the prospects for the S&P 500, one thing has changed from three years ago: He no longer sees a lot of other attractive opportunities. 'Markets are broadly priced for inadequate returns,' he says. 'We're currently in a world of no low-hanging fruit. In that world, it makes sense to diversify more broadly than ever before.'"
How about a simple apology, guys? [Toronto Star, 18Mar05] "Don't investors deserve something more than excuses from the five fund managers that allowed market-timing activities to take place? Yes, these managers have agreed to pay $205.6 million to unit holders affected by the practice. But that's not the same as saying they're sorry. Apologies help victims come to terms with those who have injured them. They indicate important lessons have been learned and that similar wrongdoing won't happen again."
Performance of Index vs Active Portfolios A 15-year (ending 31Dec04) performance comparison between portfolios comprised of the median actively managed funds versus similarly-weighted portfolios of index funds. Indexing continues to beat active by a substantial margin. How does your portfolio measure up?
Spring 2005 Newsletter [Coffeehouse Investor, Mar05] "The three Coffeehouse principles are straightforward and easy to understand. Don’t let the simplicity of these principles fool you. They are based on practical application far more sophisticated than anything Wall Street will throw your way."
You Know You're Rich When... [Wall Street Journal, 13Mar05] [If link is dead, search Archive for "clements", then select Mar 13 article.] "Wealth is a sense of financial control and not worrying about money is a key sign you are rich. That doesn't mean you can buy anything you want and that doesn't mean you can quit your job tomorrow. But at least you aren't lying awake at night, fretting about next month's bills."
Vanguard to introduce international VIPERs [Vanguard, 09Mar05] Vanguard introduces new ETFs that track European, Pacific and Emerging Markets with substantially lower MERs than competing ETFs. Vanguard also reduces the MERs of many of its US ETFs to as low as 0.07%.
Warren Buffett's Annual Letter to Shareholders [Berkshire Hathaway, 05Mar05] "Over the 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous... Investors should remember that excitement and expenses are their enemies."
End of RRSP limit on foreign content a test of fund firms' greed [Globe&Mail, 01Mar05] "Fund companies and investment dealers will save money on administrative functions as a result of the elimination of the 30-per-cent limit on foreign stocks and bonds in registered retirement savings plans, while advisers have a chance to make more money as they readjust client portfolios. How these financial players actually respond will tell their clients a lot."
Ken French's new market theory [Financial Post, 28Feb05] "To quote French: 'No one says mispricings don't exist, it's just that so few people can economically exploit them.'... people would be far better off if they didn't worry about trying to 'beat the markets' instead of focusing on the things they can control, such as cost, minimizing bid/ask spreads and portfolio turnover." Discuss on FWF
Charitable work is its own reward [Toronto Star, 27Feb05] "I'm never going to be president of Torstar Corp. But off the job, I'm president of a non-profit charitable group... Donating my time this way has been immensely rewarding. I've developed leadership abilities and learned from the inside about non-profit organizations and their challenges." Discuss on FWF
Lessons of a Long-Distance Runner [Wall Street Journal, 27Feb05] [If link is dead, search Archive for "clements", then select Feb 27 article.] "There are numerous parallels between running and investing. Here are just some of the oddball notions that occur to me between miles eight and nine, when my legs are giving out and oxygen deprivation is setting in." Discuss on FWF
Too hard to resist [Globe&Mail, 25Feb05] "If you find saving hard, arrange to put 25% of future raises directly into your RRSP. People don't like taking from current income, but abstract future income is okay. You can also write down some simple lifestyle choices. Factor in as much emotion as you can. Remember how you felt before you bought that fancy new car? Remember how you felt a year later?" Discuss on FWF
What’s new in your 2004 tax returns? [Deloitte, Feb05] "As information slips and other documents required for your 2004 tax returns start to trickle in, we would like to draw your attention to certain changes made in 2004, as well as to other noteworthy tax matters." Discuss on FWF
Modeling Retirement Income [FPA Journal, Feb05] "Knowing that future returns can only to a limited extent be 'known' by even the most investment savvy should make us all humble when it comes to modeling retirement income. Even with all of its limitations, modeling retirement income is a useful practice. It is best to acknowledge and disclose the limitations with clients, then get on with it as best we can, even though it will never be a science." Discuss on FWF
Templeton offers colourful lesson in diversification [Financial Post, 17Feb05] "It's next to impossible to find any pattern in the past 20 years that will have any predictive value for the next 10 or 20 years. The rise and fall of different asset classes appears to be totally random." Discuss on FWF
The $2-million dilemma [Financial Post, 12Feb05] "Is $2 million enough to retire on? That was the question the National Post posed on a handout to support a talk I gave on its behalf at the recent Financial Forum in Toronto."
Indepth: Retirement [CBC, 11Feb05] "If you're like most Canadians, you want to retire early and you're confident you'll have the means to do it. But chances are you won't be packing it in as early as you planned to – and you won't be living in the lap of luxury. You won't be stocking up when tins of cat food go on sale, either."
"The Relentless Rules of Humble Arithmetic" [BFMRC, 10Feb05] "The fund industry has not yet emulated the innovation that is Vanguard, and it may be too much to ask that it will ever do so. But the message I bring you today is that the CMH and its attendant fiduciary concepts, will, sooner or later, resonate with investors, and they will accept no less. Forewarned is forearmed." Discuss on FWF.
Remember: Pay yourself first [Globe & Mail, 09Feb05] Canadians "face a tug of war between wanting to pay down debt, whether it's the mortgage or the car loan or the credit cards, and wanting to put some money toward retirement and qualify for a tax break in the process. The experts have differing views on whether debt payments or RRSP contributions should take priority and, as with most investment decisions, it can depend on your personality and your financial goals."
Financial porn can seriously distract [Financial Post, 05Feb05] "I have a confession to make. I'm a pornographer. And you, dear reader, are a consumer of racy, salacious material. Wait! It's not what you think. We're talking about financial pornography, not the other kind."
Brand-name mutual funds are starting to compete on fees [Financial Post, 04Feb05] "Until recently, consumers have been relatively indifferent about the issue of high MERs. After all, 2% or 3% per year seems like a relatively small number. But a look at any MER impact calculator shows otherwise. Over a typical 25-year investment time horizon, fees on a fund with a 3% MER consume roughly 50% of a nest egg. In contrast, a fund with a 1% MER consumes just 20%."
In Investing, You Get What You Don't Pay For [BFMRC, 02Feb05] "Investors have paid a staggering cost for the excessive expenses and excessive marketing focus of the mutual fund industry. This is what we mean when I say that in mutual funds you don't get what you pay for. You get what you don't pay for." Discuss on FWF.
Altamira Inflation-Adjusted Bond Fund [Altamira, 01Feb05] "[provides] investors with regular income that is hedged against the effects of inflation, by investing primarily in Canadian (Federal and Provincial) real return government bonds and those issued by the governments of other countries, up to the current 30% foreign content limit."
Spend now, suffer later [Globe & Mail, 28Jan05] "Saving for retirement is dumbfounding for so many people--the future is a long way off, and they have only a vague idea of how much purchasing power they'll need. The trouble is, retirement planning is inextricably linked to the borrowing and spending decisions you make now."
Market-timing deals shameful [Investment Executive, mid-Jan05] "The market-timing settlements demonstrate either a complete lack of regulatory understanding or a reckless disregard of what went on and why it was wrong. The monetary penalties, although nominally large and earmarked for restitution payments, left plenty on the table for market participants. The penalties were designed to appeal to the masses and to calm them. They did nothing to address the flawed behaviour of those who permitted market-timing to occur, or to prevent its reoccurrence once the spotlight moved away." See also Market timing: Settlement fails to resolve the issues.
Check before writing that cheque [Toronto Star, 23Jan05] "You want to donate to a charitable organization, but you also want to make sure your money won't be wasted. Not every organization that asks for money is worth a donation — even if it has a registration number and can issue a charitable tax receipt."
The 2004 Couch Potato Portfolio Report [Scott Burns, 23Jan05] "Early last year I introduced a new Couch Potato portfolio that...consists of three equal parts Vanguard Total Stock Market, Vanguard Total International Stock Market and Vanguard Inflation Protected Securities... The Margarita Portfolio had two powerful advantages over the last three years – the move to realistic pricing for Treasury Inflation Protected Securities and the rise of international stocks after years of underperformance relative to U.S. stocks."
Hands-on investor: Read your way to riches [Financial Times, 17Jan05] "In my years as a personal finance columnist, the two questions I get asked most often are: can you give me a good stock pick? And, would you recommend a good book on investing? The latter question is both easier and more important. Readers interested in the first question will have to be disappointed... For the rest I submit my recommendations for the Hands-On Library."
Afterthoughts on market timing [Globe & Mail, 10Jan05] "While the OSC looks to have all but wrapped up its investigation with record fines in the spirit of protecting markets, there are many investors who are left with disappointment and fewer dollars in their mutual fund accounts."
We were 'had' by fund bibles of the '90s [link fixed] [Financial Post, 17Jan05] "I took one of the prominent books from  to see how the 10-year numbers stacked up as of June 30, 2004... The book identified 81 funds as being 'recommended'... Thirty-two of them no longer exist... Only 15 of the 81 funds 'outperformed.' Most people who bought products tracking the benchmarks did better than they would have with the recommended funds."
Why Diversify? Here are several "periodic tables" that show how various asset classes performed over the past two decades. That no one was able to consistently predict which would be the best asset classes in future years makes a strong argument that one should diversify broadly among all major asset classes rather than try to guess which will do best every year.
Brokerage group, slammed in audit, says faults fixed [Toronto Star, 13Jan05] "A scathing 2000 report on the Investment Dealers Association of Canada that was not initially released found the agency lacked structure and resources, and its investigators were unable to address a growing backlog of investor complaints. But the IDA... says the problems have been addressed... Critical investor not convinced." See also IDA audit quietly released.
Efficient Frontier • Winter 2005 [Jan05] The $150 Billion Question ["Privatization can work, and one does not need to be a libertarian to realize the empowering nature of individual accounts. But in order to avoid great slaughter, the sheep will have to be separated from the wolves."], Taste, Distress, and Jocks ["The behavioralists cannot yet be declared the winners of the value-premium debate, but when the two giants of the efficient-market hypothesis openly speculate about investors purchasing consumption goods in the capital markets, that time cannot be very far off."], and Link of the Month features Jason Zweig.
Getting Actively Passive: Index Funds Still Win -- If You Go Beyond the S&P 500 [Wall Street Journal, 12Jan05] "Index funds had a wretched 2004 -- or so it seems... So is it time to give up on good old index funds? You've got to be kidding."