Building Wealth

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

Are your investing goals different after the U.S. election?

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President Elect Donald Trump

We’ve been doing a lot of reading leading up to and since the election: as you’d expect there is no shortage of opinions of what is going to happen to financial markets and how investors should position themselves as a result.

The investing opinions vary as extremely as the political views.  We’ve read crazy things and some very sensible things.  Perhaps the best articulation of how to approach this was written by Ron Lieber  in the New York Times on Wednesday when he asked, “Are your goals different now?”

“Once upon a time — like, say, last week — you had an investing plan that was based on goals that may come years or decades from now. Perhaps you’re hoping to buy your first home. Maybe you’re trying to save enough to send a couple of children to college. You hope to retire by age 67.

Has any of that changed? If it hasn’t yet, then it’s not clear why your investments should.”  – Ron Lieber, New York Times

Big events happen and market volatility sometimes accompanies. That doesn’t mean you should try to guess the market’s reaction. As Lieber hints, changing your investment strategy to either protect you or try to take advantage of market volatility can be a sucker’s game.  At best you’ll get lucky: at worst you’ll fall victim to many of the psychological pitfalls that leave most investors, both individual and institutional, chasing the market to the detriment of their investment performance. Speculating and investing are very different things. You are an investor and investing successfully is a long term game.

So what should you do?

1.) Ignore the noise

Continue Reading…

What does the Trump Victory mean for the Markets?

USA presidential election donald trump, vector illustration, Editorial use only
President Elect Donald Trump

By Craig Fehr, CFA, Edward Jones

Special to the Financial Independence Hub

Global stocks initially reacted negatively on Wednesday in response to Donald Trump’s U.S. presidential election victory, reflecting the fact that the outcome differed from the consensus expectation, as well as the greater degree of policy uncertainty associated with Trump.

The result does come with unknowns, but remember, the market is rarely free of political uncertainties. The broader path for investment conditions will, in our view, be driven by fundamental trends that are still reasonably favourable and unlikely to change abruptly based simply on the election. So while the markets are reacting immediately and in volatile fashion, it’s important to consider the longer-term outlook when it comes to your investments.

Initial volatility doesn’t tell whole story

Continue Reading…

Investing in the Aftermath of the Trump victory

image005By Kara Lilly, Mawer Investment Management

Special to the Financial Independence Hub

Donald Trump became the 45th president-elect of the United States last night. The businessman beat former secretary of state, Hillary Clinton, ending what has been a long and salacious presidential campaign. The GOP also kept control of both the Senate and the House, leaving the fractured party with room to implement its policy platform.

Markets were relatively calm today despite the knee-jerk selloff that was triggered by the impending victory last night. Equity indices have steadied and volatility indices have fallen as market anxiety has tempered. The greatest impacts so far appear in the bond and currency markets. Yields on longer term U.S. government bonds have risen amid wagers of higher spending. Meanwhile, the Canadian dollar and Mexico peso have sunk on concerns of unravelling economic integration with the U.S.. Within equities, pharmaceutical stocks rose as investors unwound bets that a Clinton win would usher in greater regulation.

No meltdown but still a significant investing event

Continue Reading…

LIRAs — the RRSP’s less flexible cousin

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Locked-in Retirement Accounts (LIRAs) differ from RRSPs in that you usually can’t “unlock” the funds in them before age 55.

I guess the annual RRSP season is just around the corner, based on some of my most recent writing assignments. Earlier in the week, for MoneySense.ca, I made the case for semi-retirees in their Sixties (like me!) for starting the process of withdrawing money from RRSPs early. Click on the headline Retirement Tax Tips. The Hub summary ran here under the headline The case for Early RRSP withdrawals.

Then at the end of the week, the Financial Post ran my column titled The RRSP’s less flexible cousin: Everything you need to know about the LIRA, which is also available in the Saturday print edition.

As TriDelta Financial wealth advisor Matthew Ardrey told me for the FP article, you’re going to see a lot more about LIRAs in the coming years. Whether you’re leaving a classic Defined Benefit pension plan or a more market-tied Defined Contribution pension plan, the job market these days is in such flux that a lot of people are going to have to start learning about what happens when you leave an employer pension plan earlier than you might once have envisaged.

LIRAs will multiply as Boomers reach Findependence

Continue Reading…

Banks repaid Millions to overcharged investors, which got me thinking

Colorful vector infographic financial flowchart for money transfer and transactions from hand to hand as it circulates through the economy and banks

CIBC agreed to repay $73 million to more than 80,000 customers who were overcharged for their investments since 2002. The majority of those affected were in fee-based accounts and were found to have paid double fees on some investments that had embedded commissions. Meanwhile, some 24,000 CIBC clients were not told they qualified for lower-cost mutual funds because of the size of their investments, and were instead sold similar funds with higher management expense ratios.

Incredible, yet not surprising when you consider this is the same bank that makes its senior clients apply for free banking rather than granting it automatically when clients turns 60.

It should be noted that CIBC self-reported the fee problems to the Ontario Securities Commission when it uncovered the issues during an internal review. The OSC has settled similar voluntary cases with three Bank of Nova Scotia divisions, three subsidiaries of TD Bank, and with mutual fund giant CI Funds, which repaid $156 million to 360,000 clients who bought mutual funds over a five-year period.

How many other ways will Canadian investors get fleeced by an industry that cares more about protecting its compensation model than it does about looking out for the best interest of its clients?

When will the Canadian Securities Administrators (securities regulators) finally get around to banning trailer fees – the embedded commissions that puts advisors in a clear conflict of interest and which a mountain of evidence suggest influences fund recommendations?

Since we’re talking about overcharging investors, here’s a thought:

The banks are suddenly feeling so ethical and generous by volunteering to repay fees that were overcharged. So let’s have some fun (or maybe cry a little) and apply that to the more than $1.32 trillion (!) that Canadians have invested in mutual funds.

We already know that Canadians pay some of the highest mutual fund fees in the world – the Investment Funds Institute of Canada estimates the average total cost of ownership of mutual funds for clients is 2.2%.

We also know, thanks to Professor Douglas Cumming’s research on mutual fund fees, that the average trailer fee on a fund is 0.3%.

Let’s say Canadians demand that the average mutual fund fees be reduced to 1.5%. That’s lower than many other countries, but still higher than fees in Australia and the U.S. (according to Morningstar).

To get there we’d have to ban trailer fees (saving 0.3%) and maybe by doing so we’d miraculously find that dealers no longer have the incentive to sell higher fee funds and so the average comes down to 1.5%.

How much will Canadian investors save if this hypothetical scenario came to pass?

  • $1.32 trillion x 2.2% MER = $29,040,000,000 ($29.04 billion) in fees paid by Canadian mutual fund investors.
  • $1.32 trillion x 1.5% MER = $19,800,000,000 ($19.8 billion) in fees paid after lowering the average MER by 0.7%.

That’s a savings of nearly $10 billion. Now the IFIC says that 4.9 million Canadian households invest in mutual funds, so if we divide the amount saved by the number of households then each household should receive a nice $1,885 rebate.

Final thoughts

Mutual fund assets continue to grow because for the Canadians who want to save and invest, the easiest way for them to do so is by visiting a bank advisor or mutual fund salesperson. But those advisors have a conflict of interest, selling their firm’s funds that may be suitable but not in the best interest of their client because of high product fees and incentives that reward the seller.

Lower cost products such as ETFs exist, but investors have to do their research and go it alone (or use a robo-advisor service) to realize the savings. That’s why, despite widespread attention over the last 5-10 years, the total Canadian listed ETF assets is only $107 billion, or just one-tenth of the mutual fund market.

So while investors patiently wait for securities regulators to ban trailer fees, I think Canadians should demand to be repaid the $10 billion that they’re being overcharged each year from mutual fund fees.

 RobbEngenIn addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on October 30th and is republished here with his permission.
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