Archived Articles ē 2011

 

December 2011

Would you give up 44 per cent of your investment over 25 years? [Globe&Mail, 23Dec11] "Michael J. Wiener... author of the blog Michael James on Money proposed a new metric that would provide a better way of explaining the impact of investment fees to investors: the Management Expense Ratio per Quarter century (MERQ)... Using [a] fund... with an MER of 2.36%, we would have an MERQ of 44.96%. In other words, instead of framing it as 'Would you give up 2.36% per year?' we could ask 'Would you give up 44.96% over 25 years?' Chances are, people would start paying more attention." See also: Can you afford to invest in mutual funds?
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Vanguard ETFs start with a bang [Financial Post, 08Dec11] "Talk about the juxtaposition of the ridiculous and sublime. Tiwari told securities-licensed advisors that the first six 'core' ETFs sport average MERs of 0.24%, compared to 2.04% for average mutual funds in Canada and 0.88% for rival ETFs. The question is whether the so-called Vanguard Effect will take place in Canada as it has in other markets."
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Vanguard comes to Canada to cut costs [Moneyville, 07Dec11] "This week, six Vanguard exchange-traded funds began trading on the Toronto Stock Exchange. Now Canadians can buy the companyís products in our local currency... Iím glad Vanguard has finally come to our shores. May it survive and thrive and help bring down costs in what has become a bloated industry."
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November 2011

The 50-50 Solution [NY Times, 26Nov11] "These days, paying close attention to the economy and the markets can cause whiplash. What should an investor really do? In a word, nothing. When the latest news tempts you to move your investments around, take a deep breath. Unless you need the cash soon, the best course of action may be inaction."
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Vanguard Files Final Prospectus For High Quality, Low-Cost Exchange-Traded Funds [Vanguard, 09Nov11] "The range of Vanguard ETFs will feature a low average management fee of 0.24%. The ETF industry average Management Expense Ratio (MER) is nearly four times higher, at 0.88%... The expected cost differential between the Vanguard ETF range and other investment options is even more dramatic when compared with the average Canadian mutual fund MER of 2.04%." The final prospectus and related documents are on SEDAR (protected by CAPTCHA.)
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Three investment books writen by amateurs [Moneyville, 08Nov11] "I'm always looking for good books to recommend to people who want to manage their own investments. I like to see excellent design, clear writing and as little jargon as possible. Here are three I like, written by Canadian authors who are self-taught and work outside the industry. All are in soft cover. All are short (less than 200 pages)."
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OSCís investor panel bites back [Moneyville, 07Nov11] "The Ontario Securities Commissionís investor advisory panel has put out its first annual report. And itís a doozy. The seven-member group wants to give investors a stronger voice in an industry-dominated regulatory system."
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Beware The Long Tail [Science News, 05Nov11] "Scientists from a range of fields have been poring over financial data, finding some curious patterns in the process. These patterns suggest that standard economic models based on the notion of equilibrium ó markets will fluctuate but then settle down like the surface of a still pond ó may not capture the whole story. Freak events may be a normal part of long-term economic behavior. If thatís true, then the mathematical methods guiding Wall Streetís estimation of risk are seriously flawed, offering a dangerous false sense of security."
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The Extraordinary Popular Delusion of Bubble Spotting [WSJ, 05Nov11] "If identifying bubbles somehow became easy, investors would stop buying before prices got out of hand... 'I'm very skeptical whether anyone can predict bubbles reliably,' says Mr. Odlyzko. 'It's an arms race: Anytime you come up with a bubble detector, people will try to get around it.'"
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That TV pundit might know less about the future than you do [Globe & Mail, 04Nov11] "People who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options. Even in the region they knew best, experts were not significantly better than non-specialists... Tetlock also found that experts resisted admitting that they had been wrong, and when they were compelled to admit error, they had a large collection of excuses. Experts are led astray not by what they believe, but by how they think, says Tetlock."
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October 2011

Donít Blink! The Hazards of Confidence [NY Times, 23Oct11] "In general, however, you should not take assertive and confident people at their own evaluation unless you have independent reason to believe that they know what they are talking about. Unfortunately, this advice is difficult to follow: overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion."
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September 2011

Bogle: ETF Trading Has No Social Value [IndexUniverse, 29Sep11] "Broadly speaking, we have many, many problems. I think the odds are over 50/50 that weíll be moving into a double-dip recession... What is going to happen is people are going to be spending less for maybe five or six or seven years, of which a few have already gone by. So getting the economy back to a decent balance will requireóthis isnít very sexyó time."
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Five Questions: Jack Bogle, Vanguard Index Fund Pioneer [Bloomberg, 27Sep11] "The best investment advice I ever got came when I was a runner for a brokerage firm when I was in college. One of the other runners said: 'Nobody knows nothing.' And of course thatís true. Itís not given to us to know. The future is not ours to see. You try to make intelligent decisions, have an intelligent plan that balances risk and reward, balances stocks and bonds, and ignore the noise in the market."
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August 2011

Vanguard of change in fund industry [Financial Post, 10Aug11] "Moody's Investors Service predicts the new Vanguard Canada will be a win for Canadian retail investors but not so good for incumbent asset managers like Canada's big five banks and independent fund companies like IGM Financial Inc... 'No one in the industry is ever glad to see us,' admits James Norris, managing director, international investor group, a 24-year Vanguard veteran who worked with Vanguard founder John Bogle in the early days."
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Burton Malkiel: Don't Panic About the Stock Market [WSJ, 08Aug11] " No one can predict what the stock market will do in this and coming weeks. Stocks may continue their decline, but I believe it would be a serious mistake for investors to panic and sell out. There are several reasons for optimism that in the long run we will see higher, not lower, market valuations."
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A time to evaluate your jitters [Bogleheads, 07Aug11] "This is not an optimistic 'stay the course' post and it's not a pessimistic 'OMG do something' post. It's directed at people who are feeling very uncomfortable. I want to point out some things to think about, things that are hopefully truisms that everyone can see are correct once they're pointed out."
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July 2011

 

June 2011

The secret of Vanguard's viral appeal [Globe&Mail, 10Jun11] "If Vanguard chooses to focus on selling ETFs to advisers, as most people expect, its entry into Canada will be more evolutionary than revolutionary. In my opinion, it would have a far greater impact if it developed the other side of its U.S. model Ė a direct-to-client fund company that doesnít rely on the adviser network. Without the middleman, the cost for clients would be substantially lower and Vanguard would have a bigger impact on investor behaviour... Whichever way Vanguard chooses to approach the Canadian market, it will be a positive influence. Its culture and ownership structure put it solidly on the side of the investor and it has the heft to shake up our marketís dominant players."
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Vanguard officially confirms launch of Canadian†business [Financial Post, 06Jun11] "'Investment advisors in Canada are experiencing a period of change as fee-based practice models continue to take hold, and advisors and their clients are squarely focused on reducing costs and risks,' said [Vanguard's head of Canadian operations Atul] Tiwari. 'We will leverage the knowledge and experience Vanguard has gained from serving investment advisors in the U.S. for nearly a decade and our more recent efforts with advisors in the U.K. and Australia to provide sound solutions for Canadian advisors and their clients.' Details about Vanguardís product line-up will be announced once it has submitted a preliminary prospectus to the Canadian Securities Regulators in compliance with applicable laws."
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Low-fee fund giant coming to†Canada [Financial Post, 05Jun11] "Indexing and exchange-trade fund giant Vanguard Group of Valley Forge, Pa. is poised to set up shop in Canada, a move that could be a game-changer for this countryís overpriced mutual fund industry. 'Weíve been looking at the Canadian market for years and anticipate having an announcement soon,' said Vanguard spokeswoman Rebecca Katz."
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Credit lines worst trend of last 20 years, Wealthy Barber writer says [Financial Post, 04Jun11] "The worst thing thatís happening to Canadians in the last 20 years has been lines of credit... People cannot resist lines of credit. And the worst combination in the country is a line of credit and a home renovation... Beyond ĎPay yourself first,í I still say ĎStart youngí is the most important personal finance advice by far. Itís getting young kids to save, whether theyíre in their 20s or 30s, and to live within their means. Living within their means is what financial planning is all about; itís still what we struggle most with."
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Arnott Index Derided by Bogle as Witchcraft Beats Vanguard Fund [Bloomberg, 02Jun11] "To design his new bond indexes, Arnott is collecting and testing data using computer models, going back as far as five decades for the U.S. and about a quarter of a century for 40 other countries. His aim is to map the relationships between capital market returns and what he calls the '3 Ds': deficits, debt and demographics. Arnott says nations with higher levels of debt and aging populations, such as the U.S. and Japan, will produce lower returns than countries such as China, where debt and deficits are under control."
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May 2011

Jason Zweig: FiveBooks Interview on Personal Finance [TheBrowser, May11] "The Wall Street Journal personal finance columnist explains why there's truth in the old adage that investors get the returns they deserve, and suggests how savers can avoid being taken for a ride."
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The Hot Fund Tip Youíve Been Waiting For [MoneyWatch, 13May11] The placebo effect applied to mutual fund marketing: "What if, when he launched the first index fund, John Bogle didnít tell anyone it was an index fund? What if he just called it the Bogle Large-Cap fund... and let everyone think it was actively managed? More than three decades later [the fund] would be sporting the sort of numbers that would make a fan of actively managed funds drool. And yet despite this fundís record, those same investors take a pass, simply because itís an index fund, and they think they know better."
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A new way to convert between CA$ and US$ [Horizons BetaPro, 12May11] "Investors who wish to make a foreign currency transaction can purchase DLR in Canadian dollars and sell DLR.U for U.S. dollars proceeds.† The investor needs only to arrange with their broker that they would like to have their DLR units sold as DLR.U units, or vice versa... Using DLR and DLR.U could be a very cost effective way for many Canadian investors to purchase U.S. dollars or convert their U.S. dollars into Canadian dollars." See also: Horizons U.S. Dollar Currency (DLR.U) - Overview
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Whatís the best mix of investments? [Moneyville, 08May11] "The aim of the asset allocation game is to keep your portfolio simple and fees as low as possible while taking into account who you are. As your life changes ó from kids and marriages to jobs and aging ó you may want to adjust your allocations."
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April 2011

 

March 2011

Why investors in Europe need a John Bogle [Financial Times, 13Mar11] "Canada, by the way, is the only market to score an F for fee levels. The average asset weighted expense ratio for equity funds there is 2.4 per cent, says Mr Rekenthaler. Canadian fund managers complain in private about being held to ransom by distributors, just as their European counterparts do. Both sets of managers are profitable, though. It is the investors who are losing out. Without a John Bogle to do battle on their behalf, they will probably continue to do so." [The FT, by the way, is the only UK newspaper to score an F for fee levels.]
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The Third Rail [Morningstar, Mar11] "If most investors use advisors and most investors continue to do the wrong thing, then there must be a tremendous amount of bad advice being given. Or, said more charitably, the current state of financial advice cannot counteract the self-defeating inclinations most investors have. Somehow, our collective ability to push investors toward sound decisions is not yet up to the task, even though huge sums are being charged for the service."
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Why are fund statements so hard to understand? [Moneyville, 05Mar11] "'Many firms have argued in the past that they donít want to have to put advisors†in a position to have to defend the ROR (rate of return) figure since it sometimes takes away from the financial planning discussion.† Advisors are often called right after the statements arrive leaving them little time to prepare - brokerage firms want to respect the advisors who are distributing their products.'†We certainly wouldnít want to put advisors in a difficult position, but... isnít answering those questions part of the service we pay for?"
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Mutual-funds giant Bogle on money, living well, and Madoff [Philadelphia Inquirer, March Forth 2011] "[Paul] Samuelson, the first American Nobel laureate in economics, was both a personal and professional proponent of Bogle. In 2005, Samuelson wrote Bogle a note: 'Any small influence on you has been more than offset by what Vanguard has done for my six children and 15 grandchildren. May Darwin bless you!' That same year, Samuelson delivered a speech that ranked Bogle's financial invention with the 'wheel, wine and cheese, the alphabet, and Gutenberg printing: a mutual fund that never made Bogle rich but elevated the long-term returns of the mutual-fund owners. Something new under the sun.'"
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February 2011

Risky business [MoneySense, Feb11] "To many it is the most basic rule in investing: The more risk you take on, the higher your potential returns. But what if it isnít true? What if, in fact, after a certain point, taking on more risk actually lowers your potential returns? Itís a controversial argument that seems to directly contradict the teachings of investing 101óbut after spending many years carefully considering empirical studies on the matter, itís an argument that I believe to be true."
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January 2011

Estate tax: Uncle Sam wants that too [Globe & Mail, 26Jan11] "Youíre a Canadian citizen and resident. Perhaps youíve never even set foot in the U.S. The fact is, you could still be liable for U.S. estate tax if youíre not careful... As a Canadian citizen and resident, you'll face estate tax on your 'U.S. situs property' (U.S. assets) at the same rates as U.S. citizens. This means you could pay a tax as high as 35 per cent of the fair market value of those assets at the time of your death."
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The Sketchpad: Personal Finance on a Napkin [NY Times, 17Jan11] "In a continuing series of back-of-the-napkin drawings and posts on the Bucks blog Carl Richards, a financial planner, has been explaining the basics of money through simple graphs and diagrams. Here we bring them to you all in one place for easier browsing." From Investing With the Herd.
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