|Archived Articles • 2006|
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. New for 2006: Donations of listed securities such as stocks and mutual funds no longer attract any capital gains tax plus, as before, you get a tax receipt for the full market value.
Financial abuse of seniors all too common [Toronto Star, 24Dec06] "It can be very difficult to talk to older people about money without sounding nosy, ill-mannered or grasping – especially if you're related to them. Money, to that generation, is a very private matter. But this is the season of generosity. If you have a senior in your family, try to assure them that you're not prying but let them know you're willing to be a sounding board if they're confused about financial issues."
If these investment vehicles were ice cream, I'd take vanilla [Globe & Mail, 15Dec06] "Structured and managed products are designed to make life simpler for the investor, but I think the opposite it true. In my opinion, there is a greater likelihood that the buyers will fail to get what they needed, what they wanted and/or what they thought they were getting."
The best investment advice you'll never get [San Francisco, Dec06] "For 35 years, Bay Area finance revolutionaries have been pushing a personal investing strategy that brokers despise and hope you ignore."
Advice I'll Pass Along to My Daughter [WSJ, 10Dec06] [If link is dead, search Archive for "clements", then select 12/10/06 article.] "Hannah, of course, will have her own financial struggles, and those will teach her far more about money than I ever could. Still, there are nine key financial insights I'm hoping to pass along -- and most have precious little to do with picking stocks and buying mutual funds."
The year-end scramble to beat the tax man [Financial Post, 09Dec06,] "The deadline is fast approaching for taking end-of-year action to reduce taxable income. While 2006 taxes must be filed by April 30, 2007, most transactions capable of reducing 2006 taxes must occur before midnight on Dec. 31."
Procrastination will cost you retirement dollars [Globe & Mail, 25Nov06] "Although Bertrand contributed $90,000 more to his retirement savings than Ernest, and both earned the same rate of return, Bertrand ended up with $19,360 less in his portfolio than Ernest. The difference? Time. Ernest's money was working for him seven years sooner."
Transferring ownership to heirs early can be tricky [Toronto Star, 25Nov06] "Failure to take account of the tax (and other) aspects of transferring ownership of property before death can blow up a family," cautions Rosentreter. Gifting before death can make things worse if the goal is to be equally fair to your whole family."
We're No. 1 [Globe & Mail, 24Nov06] "It's now pretty much official: Canadians pay the world's highest mutual fund fees... Some Canadian fund analysts questioned the percentages in the study, but even they agreed that Canadian fees are relatively high... When you know how funds are sold, you can understand why fees are high. The normal economic behaviour of an intermediary is to maximize return--the larger the payment from a producer, the more likely I am to sell the product."
Facing a moral dilemma [Investment Executive, Nov06] "The lesson ended with a heightened awareness that there is a lot in the financial services industry that favours fund managers and that once the students join the work force, they will have to face this moral dilemma. They will have to answer the questions of knowledgeable clients. They have to prepare themselves for the future — not just because of negative articles in the press, but because clients’ needs must come first if advisors are to meet their fiduciary obligations."
Nine Ways to Manage Money Effectively [WSJ, 19Nov06] [If link is dead, search Archive for "clements", then select Nov 19 article.] "There are some key financial insights that, I believe, should guide everyone's investing, and I pound away at them week after week. I have been talking about some of these ideas for years, while others have only recently captured my imagination. Want to manage your money better? Here, I would argue, are nine of the most important financial ideas."
OSC wants to know why the industry isn't revealing all [Globe & Mail, 13Nov06] "In general, fund reports use too much industry jargon and are difficult for the average investor to digest. Some websites are hard to navigate and few fund companies provide a detailed breakdown of management fees. Disclosure is limited."
Returns and Inflation [Wall Street Journal, 12Nov06] "Over time, the stock market has delivered returns well in excess of inflation. But sometimes returns don't keep up."
Practical ETF Investing [Scott Burns, 28Oct06] "Does it make sense to become an ETF (exchange-traded-fund) investor? I think so. The smaller the commission cost of buying and selling— measured as a percent of assets invested— the more attractive ETF investing is. The surprise is that it makes sense for relatively small portfolios." See also: The Online Calculator.
Industry must address high costs [Investment Executive, Oct06] "The reality is that high costs are eroding Canadians’ ability to accumulate sufficient assets to provide for their financial well-being. The competitive forces that normally work to produce the value proposition are simply not there... The lack of transparency of fees and charges, and the impact these fees and charges have on investors’ long-term total return is unconscionable."
Rethinking Your Investment Risk [Boston University, 26Oct06] "Living standard risk – the variability of your living standard—and portfolio risk—the variability of the return on your investments—sound similar. But they aren’t. You can have a very risky portfolio, but a very safe living standard."
Mutual funds' Martin Luther [Financial Post, 16Oct06] "In De Goey's opinion, ["the ugly truth" is] that stock picking and actively managed mutual funds add no value to investors. But it's precisely such funds that use 'embedded compensation' to pay advisors handsomely -- in the form of upfront commissions and annual trailer commissions. He likens these payments to 'bribes' that taint the advice dispensed."
Cost of investing does matter [Investment Executive, Oct06] "The incontrovertible fact is that costs matter. And Canadians who invest in the high-cost mutual funds offered by the Canadian financial services industry are unknowingly giving up an exorbitant amount of the long-term capital they would otherwise be accumulating while needlessly exposing themselves (based on their actual return) to the market risk of loss of capital. This is unconscionable."
Activist raises tough questions on fund fees [Toronto Star, 07Sep06] "A debate over high mutual fund fees continues to rage, with analysts and investor advocates demanding more information... Windsor analyst Dan Hallett is critical of the authors' figures... But investor advocate Ken Kivenko argues the fee differential should be a matter of public concern... So Kivenko has jumped on the opportunity to ask some pointed questions. Kivenko's questions will give other investors something to think about."
Dispute Remains Over Fund Board Rule [Houston Chronicle, 06Sep06] "Bogle, who has been a sharp critic of the industry he pioneered, is not only in favor of the rules, he has said he wants rules that are even stronger. 'Since an executive of an investment advisor who serves as a fund director has a profound and direct conflict of interest that cannot be simply disclosed away, I continue to believe that 100 percent of the board should be independent,' he said in comments to the SEC."
'First of All, I'm an Honest Guy' [WSJ, 02Sep06] "Jack Bogle, founder of Vanguard, has earned his fame as the man who taught the small investor how to make the stock market work for him. He'll also be remembered as the guy who left $20 billion on the table... 'Every once in a while, I think, God, have you really been stupid? On the other hand, not all the rewards in this life are financial. Compared to any normal person, I've had a staggering financial award. But am I worth one tenth of 1% as much as [Fidelity founder] Ned Johnson and his $25 billion? No. But I'm doing fine. And I have no complaints.'"
Journal of Indexes [Sep/Oct06] Topics include interviews with myriad "leading lights of the indexing industry to answer a few questions about the hottest topics du jour" and a summary of the continuing debate over fundamental indexing.
Mutual Funds Fees Around the World [Khorana, Servaes & Tufano, Aug06] "The U.S. and Canada are alike in many ways; in the fund industry, both are ‘closed’ fund industries that do not easily permit foreign domiciled funds from selling funds in their countries. However their mutual fund fees differ dramatically... We can see that, after controlling for fund type, fund size, complex size and other variables, the U.S. is among the lowest cost countries (by fund registration) in our sample, and Canada is the single highest fee country by far." See also Expense ratios of North American mutual funds
Insights on Market Capitalization and Fundamental-Weighted Indexes [BGI, Aug06] "Throughout the years, index providers and practitioners have dedicated themselves to the development of indexes for investors’ benefit. The focus on understanding the role of indexes in portfolios has lead to criteria for evaluation. In recent months, a range of new indexes has been introduced to provide investors with alternative benchmark choices."
Four Mental Mistakes to Avoid Now [WSJ, 20Aug06] [If link is dead, search Archive for "clements", then select Aug 20 article.] "Investing is so simple, any idiot can do it. The problem: There aren't enough idiots. Let's face it, amassing a decent-size nest egg isn't exactly rocket science. All we have to do is save regularly, buy a few low-cost mutual funds and patiently await our reward. Yet most of us scorn such humble simplicity. Instead, we are too confident and too clever. Result? Consider some of the mental mistakes that investors are now making."
Controversy dogs fund review groups [Toronto Star, 19Aug06] "The bottom line is, I think the (new rule) has other motives than simply investor protection. Once again, the regulators and the industry have set off investor protection in favour of the so-called market efficiency and industry interest."
Finding mutual funds with the best records [Scott Burns, 15Aug06] Conclusion: Only 3.2% of US domestic equity funds that survived for 20 years outperformed Vanguard's S&P 500 index fund and did it with lower risk.
The perfect portfolio [FundAdvice.com, Aug06] "Our goal, as my father stated succinctly some years ago, is to give investors a piece of the action along with peace of mind. In the end, investors need strategies with enough power on the upside to generate favorable returns, along with enough protection on the downside to keep them from bailing out in discouragement. This is one of the hardest parts of investing. But it’s well worth whatever time it takes to do it right."
Thick as a BRIC [Efficient Frontier, Aug06] "One of the livelier comic relief items to recently grace the world of institutional investing is the so-called BRIC fund phenomenon — emerging markets offerings restricted to Brazil, Russia, India, and China. (B-R-I-C, get it?) The rationale behind these bizarre beasts, limited to four of the world’s wildest equity markets, is that the four nations’ spectacular economic growth rates will soon catapult them into the front ranks of the world economy. This has to be good for investors, right?"
New fund rule comes under fire [Financial Post, 01Aug06] "More than a decade after Glorianne Stromberg's controversial report to overhaul Canada's mutual fund industry, regulators have unveiled a new "Rule" to address conflicts of interest. But Stromberg and some investor advocates believe fund companies watered down earlier versions of the Rule too much. Even some fund companies want something harder hitting."
A fountain of financial wisdom [SLO Tribune, 26Jul06] "That daily latte habit may be draining your retirement funds. 'If you save the $5 every day you spend at Starbucks and let it compound slowly, you could have $500,000 by the time you retire,' explained Paul Farrell. Through his regular columns for MarketWatch and his nine books on personal finance and investment psychology, the Arroyo Grande resident is hoping to demystify investing with several simple strategies."
Seeking sanity amid a market of ETF mania [Globe & Mail, 22Jul06] "What's the word on this new ETF? To find out, head to the Financial Webring Forum and its Funds and ETFs section. You'll find a lot of back and forth here on the FTSE RAFI fund, as well as on other topics, such as dividend ETFs (focusing on stocks with solid dividend yields) and ETFs that track commodity indexes."
How we paid off our house in three years [Yahoo Finance, 20Jul06] "Have you ever wondered what you could accomplish if you saved 80% of your pay? Well I can tell you, because I did it. Most people have trouble saving just 5% or 10% of what they make, but my wife Tiffany and I decided that it was worth living like paupers for a few years if it could give us a huge jump start on life. Saving as much as we did was challenging, but what we accomplished was amazing - I still can't believe it myself sometimes."
Investors need to know how well they're doing [Toronto Star, 19Jul06] "You wouldn't go on a diet without weighing yourself on a scale. So, why would you let someone sell you investment advice and not provide any way to measure your progress? Knowing where you're going and how you're doing is part of the service you pay for. So, let's make sure the industry tells us."
Warren Buffett Interviews [PBS, 10-12Jul06] "Warren Buffett stunned the world when he announced he was giving his fortune to the Bill and Melinda Gates Foundation. Charlie Rose is the only broadcast journalist with access to Buffett and Gates on their friendship which resulted in this historic announcement."
Clients deserve to know annual rate of return [Globe & Mail, 13Jul06] "The top argument for providing annual rate of return information has to do with basic financial planning. Along with your age, goals, risk tolerance, a key variable in any plan is the rate of return you expect to generate. If your actual results lag your expected return, you'll need to look at any one of several remedies that include contributing more. By this reasoning, it's ridiculous that annualized performance reporting isn't already provided by financial firms. 'I can't think of anything more important than knowing how you're doing and being able to take corrective action if you're off track,' Mr. MacKenzie said." Sign Petition.
The "Dilbert" guide to personal finance [Vanguard, 12Jul06] "Wouldn't it be great if someone reduced financial planning to a few simple rules? A list that you could send to a recent college graduate or to a friend who struggles with money? Well, someone has compiled just such a list for first-time investors. It's called "Everything you need to know about money," and you might be surprised at how short it is—and who wrote it. The list is the work of Scott Adams, the cartoonist famous for creating Dilbert."
Is seg fund security worth the high cost? [Globe & Mail, 11Jul06] "When it comes to MERs, the difference between segregated funds and their twin non-segregated fund is often huge. That's where security overkill could come in. Even the most volatile asset classes rarely lose money over a 10-year period... But the worst case of security overkill has to be segregated Canadian money market funds."
Protected notes may leave you exposed [National Post, 11Jul06] "Regulators are concerned about 'increasingly complex structures' that may pose risks to investors. Because many PPNs are sold without a prospectus they are also worried about proper disclosure. Before investing in PPNs, the CSA says, investors should know about the high fees and illiquidity of many of these products. 'There is no guarantee that you will get back more money than you invested,' the CSA asserts, 'If you take your money out early, you can lose the guarantee on your principal and be charged a fee.'"
Buy and Hold? Sure, but Don't Forget the 'Hold' [NY Times, 02Jul06] The lesson to draw from all of this starts with a basic idea: know thyself. Are you the kind of investor who just can't adhere to a long-term buy-and-hold strategy through a long bear market? While there is no shame in acknowledging as much, it is far better to do so now than it would be during the next bear market. If you are this kind of investor, try to find an adviser with a decent long-term record, whom you can follow through a bear market. You'll probably end up making less money than you would by staying in an index fund for the long haul. But you'll probably make more money than those supposed buy-and-hold investors who lose faith at the bottom of the next bear market."
National[US] Retirement Risk Index [Center for Retirement Research, Jun06] "The retirement landscape is shifting dramatically, making the outlook for retiring Baby Boomers and Generation Xers far less sanguine. Over 40% of households are 'at risk' of not having enough to maintain their living standard in retirement. Saving more and working longer may substantially improve the outlook." See also How secure are retirement nest eggs?
When writing your will, make sure your intentions are clear [Globe & Mail, 24Jun06] "Few things can cause greater problems than joint ownership... A simple solution exists here. First, think twice before placing significant assets in joint names. Second, always write down whether your intentions are to hold assets jointly for convenience, or because you intend to make a gift to the joint owner(s). Make sure your financial and legal advisers have a copy of this written intention."
Investors' challenge: Keep fees low [Toronto Star, 21Jun06] "Bogle pointed out in a May 15 speech in Las Vegas that only one in seven U.S. equity mutual funds managed to beat the 25-year performance of the Standard & Poor's 500 index. Nearly two-thirds of funds available in 1970 disappeared, and only one in 120 beat the index by more than 2 percentage points throughout the period. The chances of an untrained do-it-yourself investor doing better would be slimmer. The importance of controlling costs will be particularly important over the next decade if Bogle is right that U.S. investment returns will not be as high as during the past quarter century."
Amid Losses, 12 Financial Truths Persist [WSJ, 18Jun06] [If link is dead, search Archive for "clements", then select Jun 18 article.] "Get a grip. Spend a few days following the markets, researching investments and watching business television, and you are likely to find yourself overwhelmed by the uncertainty of it all. Will stocks rise or fall? Which mutual funds will shine? What's next for interest rates? But take a step back and you will discover that there is, in fact, a surprising amount of certainty. True, you will never know which way stocks are headed in the days and weeks ahead. But when it comes to managing money, there are some undeniable truths -- including the dozen listed below."
"How much is enough?" [Scott Burns, 01Jun06] "My all-time favorite answer came from a reader: 'You know you are rich when more money won't change where you live, what you eat, what you drive or who you sleep with.'"
Helping hand or kickback? [Globe & Mail, 26May06] "'Soft dollar' commission deals are legal, but they're starting to give some institutions the willies... My colleagues and I have a solution. Investment managers should be required to disclose the details of third-party commission payments -- who they're paid to, and the totals -- in their annual regulatory filings. Then, when firms like mine decide to do soft dollars, we won't be part of a conspiracy to keep it out of public view."
Fundamental Indexing and the Three-Factor Model [Efficient Frontier, May06] "We draw two conclusions from this exercise: Fundamental indexing is a promising technique, but its advantage over more conventional cap-weighted value-oriented schemes, to the extent that it exists at all, is relatively small... Even assuming that fundamental indexation produces returns in excess of its factor exposure, caution should be used in the practical application of this methodology."
Make Sure Your Money Lasts as Long as You [WSJ, 21May06] [If link is dead, search Archive for "clements", then select May 21 article.] "Retirement is a time to kick back, relax and wonder whether you will outlive your savings. This, I regret, is a real danger. Spending down a portfolio in retirement is a wildly tricky exercise. The problem: In all likelihood, you will want to spend more than your portfolio's after-cost, after-tax, after-inflation rate of return. And, in the long run, that can spell trouble."
Don't put much stock in the TV experts [Townhall.com, 17May06] "If you want to beat other investors, too, it's logical to think that you should turn to the most visible specialists for advice. These men and women make their living studying stocks, and they sound so confident on CNBC. You'd think they could beat the market. Don't bet on it."
The Bogle eBlog [Jack Bogle, 15May06] "Can you believe it? A few months ago I barely knew what on earth a 'blog' was, and now here I am blogging..."
What’s Ahead for Stocks and Bonds—And How to Earn Your Fair Share [The Money Show, 15May06] "[If] the road to investment success is hazardous, filled with dangerous turns and giant potholes, never forget that simple arithmetic can enable you to moderate those turns and avoid those potholes. So do your best to minimize your investment expenses and your own emotions, rely on your own common sense, be very careful, and then stay the course."
A great stock sale idea: Zero taxes and help a favourite charity [Globe and Mail, 13May06] "This week, I want to share with you one idea that will: (1) allow you to eliminate all the tax on an investment you've decided to sell, (2) make a potentially generous gift to charity, (3) keep much of the sale proceeds for yourself, and (4) prove that I am more of a math geek than I thought."
'New thinking is required' as longevity soars [National Post, 13May06] "Couple the extra longevity Boomers expect with the decline in DB-pension availability and it's clear 'new thinking is required,' Milevsky says. He warns that Boomers relying on their RRSPs and RRIFs must think about getting their longevity insurance in another way."
My Jack Bogle Problem [Kiplinger's, May06] "Only one thing bothers me about Bogle, and it bothers me a lot. It is his hectoring insistence that it's impossible for individuals to select fund managers who can beat the market." [When and where did he say that? ...Bylo]
Barclays Canada announces name change from iUnits to iShares [CNW, 24Apr06] "Barclays Global Investors Canada Limited announced plans today to change the name of its Toronto Stock Exchange-listed family of exchange-traded funds (ETFs) from iUnits to iShares... Although the individual fund names will change, the respective ticker symbols will remain the same."
Secrets Of Success: History doesn't always repeat itself [The Independent, 22Apr06] "He offers a long-term perspective on the current valuations of shares and bonds. He points out that the way investors regard these two asset classes has been undergoing a profound and important change over the past few years - though not all the implications, he thinks, have yet been fully thought through."
Senior wise to plan now for the future [Toronto Star, 04Apr06] "'While luckily enjoying good health in (my) 80th year — the first really affecting age hump — the thought is now regularly occurring that health problems could quickly overtake and make management of finances impossible,'... [She] — and others much younger — should not overlook the first and most fundamental step. That is to see a lawyer about naming someone to act with the power of an attorney to manage property and make decisions about personal care if she were to lose her physical or mental capacity to cope."
Thinking about investing in PPNs? Take it from the experts: Think again [Globe&Mail, 04Apr06] "PPNs are a finely tuned machine for extracting money from unsophisticated investors and transferring it to banks, brokers and those advisers who are willing to sell them. The fees are stiff with PPNs, and they're inadequately disclosed. Same goes for the formulas used to determine how much benefit investors will get from increases in the value of the underlying product."
Is There An Economist In The House? [Scott Burns, 02Apr06] "This eight-part series of columns, written by Laurence J. Kotlikoff and me, explores the consumption smoothing approach to lifetime personal finance. While the idea has been developing for nearly a century, it has taken the power of today's personal computers to build the necessary tools. When we use these tools, we find that conventional planning is more likely to lead us astray than take us to financial security."
The single best investment [National Post, 27Mar06] "I’m going to describe what I believe is the single best investment... it’s an investment with a GUARANTEED high return and highly tax efficient. And it’s nothing fancy. It’s simply paying off your home mortgage as quickly as possible... Problem is most advisors don’t get paid much when the consumer puts debt repayment ahead of investing. So they tend to have a preference for the RRSP."
A Mean-Variance Society? [Efficient Frontier, Mar06] "The quality of political discourse in this nation would improve greatly if our national-policy debates emulated the deliberations of a collegial investment committee consisting of individuals with varying degrees of risk tolerance as it gropes towards an agreement on the risk/reward characteristics of its investment portfolio. There is much progress to be made on both sides. Those on the left need a better understanding of the mean; those on the right, the variance, and both need to clearly grasp the tradeoffs therein."
A focus on the exceptions that prove the rule [Financial Times, 24Mar06] "The problem is that measures of uncertainty using the bell curve simply disregard the possibility of sharp jumps or discontinuities and, therefore, have no meaning or consequence. Using them is like focusing on the grass and missing out on the (gigantic) trees. In fact, while the occasional and unpredictable large deviations are rare, they cannot be dismissed as 'outliers' because, cumulatively, their impact in the long term is so dramatic."
Making the Most of Vanguard's VIPERs [Morningstar, 23Mar06] "Given its indexing expertise, Vanguard is a natural fit for the ETF market, which is a focus of growth for the firm. To attract more interest, Vanguard has broadened its slate of VIPERs to 23, and more are certainly on the way... However, because VIPERs are separate share classes of traditional index funds, some critics argue that VIPERs will ultimately be less tax efficient than competing ETFs."
Shopping abstinence a liberating experiment [Toronto Star, 22Mar06] "She couldn't figure out why she had a four-figure credit card balance — perennially unpaid — and owned so much stuff. So, she tried an experiment: Stop shopping for a year. On Jan. 1, 2004, she and her live-in partner Paul — both in their early 50s, with no children — took a vow of abstinence. They'd buy nothing, except what was necessary"
Why you should protect yourself by avoiding PPNs [Globe & Mail, 21Mar06] and
Don't Let Income Obsession Cheat You [WSJ, 19Mar06] "There's a natural instinct among retirees to build an investment portfolio that generates a reliable stream of income -- just like the paychecks they used to get while working... But some financial advisers warn that too much of a focus on income can be harmful. The main problem, they say, is that a portfolio overly concentrated on generating income can fall short when it comes to growing money at a sufficient rate to outpace inflation."
When 'Cash Back' Doesn't Make Sense [WSJ, 12Mar06] [If link is dead, search Archive for "clements", then select Mar 12 article.] "When purchasing investments, you should focus on getting your cash back. But with insurance, your hope is never to have any of your money returned... When you buy insurance products, the idea is to get the insurance company to assume risks that you can't afford to shoulder on your our own... You don't want to be getting a check from the insurance company. If you are getting money in the mail, it probably means something awful has happened. And if nothing truly awful has happened and you're getting a check, it likely means that the deductibles on your homeowners and auto policies are too low or you're insuring stuff that shouldn't be insured."
Buffett takes a shot at advisors [Financial Post, 10Mar06] "'And that's where we are today,' Buffett concludes. 'A record portion of the earnings that would go in their entirety to owners -- if they all just stayed in their rocking chairs -- is now going to a swelling army of Helpers.'... Frictional costs now amount to 20% of the earnings of American business, Buffett estimates." See also Warren Buffett's Letter to Berkshire shareholders 2005 pp 18-19.
The Devil's Dictionary: Bonds and Stocks [Bloomberg, 08Mar06 and 28Feb06] "In the constant search for clarity amid so much financial murk I work from time to time on a tongue-halfway-in-cheek stock market dictionary. Here are a few of my latest entries."
Five mistakes investors just can't afford [MoneyCentral, 02Mar06] "If you’re not an all-star money manager, read these five most-common behavioral mistakes that you can correct to make and keep more money."
Blame the Fund Manager, or the Face in the Mirror? [NY Times, 26Feb06] "Most mutual fund investors have only themselves to blame if their portfolios seriously lag behind the market. That is the conclusion of a new study that says the typical investor has an atrocious sense of timing. People tend to dump mutual funds just before the funds enter several-year periods of above-average performance, and to buy funds that are about to sag. In fact, the study found that the performance of most fund portfolios would improve markedly if the owners just left well enough alone." See also Dumb money: Mutual fund flows and the cross-section of stock returns
Secrets Of Success: Statistics prove history is not bunk [The Independent, 25Feb06] "Here are some more interesting findings from the just-published "Global Investment Returns Yearbook" from the London Business School and ABN-Amro, with comments from me. As Mark Twain used to say, history never repeats itself, but it does rhyme. There is plenty to ponder in the long-run figures of different investment asset classes." See also Currency strength not an indicator for long-term equity returns
Footwear vs. finance [ROB Magazine, 24Feb06] "I was travelling recently and visited a little-noticed country called Shoeland. It's on the small continent of Outlandish, a bit north of Eurasia. I liked Shoeland. Almost everything there is identical to Canada, apart from one really weird exception: the market for new shoes."
The best of the Internet calculators can take the headache out of retirement planning [Globe & Mail, 21Feb06] "There's a problem you should be aware of with some of those handy calculators available on the Internet to help ensure you're saving enough for retirement. They're kind of useless on the whole, especially the ones offered by companies selling financial products. Either these calculators are laughably simplistic, they leave out pertinent details or their results are incomprehensible. As a way of telling what's ahead for your retirement savings plan, they're only a bit more useful than a fortune cookie."
Darwinian Investing [Business Week, 20Feb06] "Can brain science unlock the secrets of success on Wall Street? And if so, will it transform the field of personal finance? These matters fascinate Andrew W. Lo, a finance professor at Massachusetts Institute of Technology's Sloan School of Management and director of its Laboratory for Financial Engineering." See also: "Economists Suffer from Physics Envy".
Twenty Tips for No-Nonsense Investing [WSJ, 19Feb06] [If link is dead, search Archive for "clements", then select Feb 19 article.] "Get an attitude. Market strategists, your brother-in-law Bob, the television talking heads and the local brokerage firm's slick salesmen all spew an endless stream of utter nonsense. Such garbage would be hysterically funny, if it wasn't so damaging to investors' financial health. Want to avoid getting taken? You need to summon the skepticism of the unflappable, world-weary, Street-savvy veteran investor. To that end, when you're next getting an earful, keep these 20 thoughts in mind."
Bank on high dividends and diversification to protect against a bubbly market [Globe & Mail, 18Feb06] "'Long-term average stock returns are a poor forecaster of the future.'... 'Dividends are good and for some surprising reasons.'... 'International diversification is not a waste of time.'... His final bits of advice use no Greek letters or algebra: Diversify, keep your costs low, be disciplined about rebalancing your portfolio. And unlike that guy in the TV ad, try to filter out some of the media noise. 'Stop watching the stock markets as if they were on ESPN.'"
Early Retirement [Philip Greenspun, Feb06] "This article addresses the joys, challenges, and some practical aspects of retiring young. The author retired in 2001, at the age of 37 (same age as Rossini when he retired)."
Are ETFs Really More Tax-Efficient Than Mutual Funds? [Morningstar, 14Feb06] "Purveyors of exchange-traded funds hawk their wares as the cure for the common capital gains distribution. For a while, it was hard to assess the claim that ETFs are more tax-efficient than conventional mutual funds because few ETFs had significant track records. Now that more than a third of ETFs have been around for five years or more, we can assess if ETFs have delivered the tax efficiency they promised. Overall, the answer is yes."
ETFs claiming superior stock selection draw fire [Investor's Business Daily, 13Feb06] "The latest upstart in the evolving exchange-traded fund business is a set of ETFs linked to indexes that claim superiority over standard market benchmarks. Proponents of these new measures say their sophisticated, proprietary strategies can identify winning stocks. Not everyone agrees. "
Foretelling future in stocks [Toronto Star, 26Jan06] "Even with perfect advance knowledge of an industry trend, you cannot reliably predict which stock will produce the best return over a short or long period of time. The same is true for particular industries and nations, as well as for investment managers who try to pick winners. Over time, the vast majority of money managers will fail to beat the return of the total universe of available stocks."
Portfolio Rebalancing in Theory and Practice [Vanguard, Jan06] "Based on reasonable expectations about return patterns, average returns, risk, and correlations, we conclude that for most broadly diversified stock and bond fund portfolios, annual or semiannual monitoring, with rebalancing at 5% thresholds, produces an acceptable balance between risk control and cost minimization. To the extent possible, this rebalancing strategy should be carried out by appropriately redirecting interest income, dividends, new contributions, and withdrawals."
How to pack your trusts [Financial Post, 23Jan06] "There's one thing you must realize about income trusts from the outset: they can be volatile. They are not government bonds. Their income is not guaranteed. They are businesses, and their returns are subject to the same vagaries as any other corporation. That means the value of their units can rise or fall sharply, depending on what's happening in the world in general and in their specific sector in particular. The best way to avoid the risk of poorly performing trusts is through a diversified trust portfolio. Here are some representative ones."
ETFs are cheaper alternative to mutual funds [Montreal Gazette, 09Jan06] "An investor who goes by the moniker Bylo Selhi notes that the new ETFs offered by Barclays have management fees that are about one-fifth of what you would pay for an actively managed mutual fund in the same market segments. That's huge, especially when you consider that most actively managed mutual funds fail to beat their benchmark index in any given year."
What's your burn rate? [Yahoo/CNW, 16Jan06] "Canadians can easily burn a hole in their wallet and enjoy doing it, according to a survey sponsored by Mackenzie Investments. An average Canadian makes $100 cash last four days, and nearly one quarter (23%) can't even make it 48 hours. Over two thirds (67%) also admit that spending money makes them happy or gives them a rush, and when it comes to investing, 42% of Canadians say they have never stopped themselves from buying something they wanted so they could invest the money instead." See also www.burnrate.ca
Resolved: Let's Keep It Simple in 2006 [WSJ, 01Jan06] [If link is dead, search Archive for "clements", then select Jan 01 article.] "My advice for 2006: Focus on simple strategies. Sure, in this column, I often write about complicated financial issues. But as I look back over the past two decades, it's the simple stuff that has worked best for me. Here are the four smartest financial moves I have ever made -- and none involved any great sophistication."