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April-15-16

A simple way to save $8,600

I enjoy reading articles like this that delve into people's personal finances and offer advice on investing and retirement planning.

What I found most interesting about this one is that the simplest and most significant recommended changes was buried near the end of the article:

"They can add to their retirement income by cutting costs on their many mutual funds, some of which have fees of 2.8 per cent of assets under management. A switch to exchange-traded funds, some of which have fees of a tenth of a per cent a year, could save two per cent, or at the $430,000 asset level, $8,600 a year."

I'm not sure why a simple way of saving almost $9,000 a year would be an afterthought. If you do one thing with your investment portfolio this year, find out how much money you're paying in management fees. It's important to know whether you're getting value for what you're paying or whether there's a lower-cost strategy that could generate the same or better results for you.

By: Mark Sutcliffe | 0 comments
April-15-16

Merit or chance results?

A few weeks ago, a panellist on my political television show mentioned a quote to me from the Roman senator and philosopher Boethius.

"The world does not judge actions on their own merit but on their chance results," he wrote. "And they consider that only those actions which are blessed with a happy outcome have been undertaken with sound advice and reason."

When a basketball game is decided by one goal, the coach of the winning team is asked about all the things his players did well while the opposing coach conducts a post-mortem. The winning points might have gone in off a lucky bounce, meaning either team could have won, but all the efforts of the victorious team are made glorious and all those of the losing team were futile.

In investing, there are plenty of people who look smart because they picked the right stocks. But is there really a relationship between their decisions and the results, or were they just lucky? The evidence shows the latter. Studies show that people who have had success in the past don't pick any better than anyone else in the future.

Let's not confuse luck with merit, especially when our money is involved.

By: Mark Sutcliffe | 0 comments
April-15-16

In sports, politics and investing, there are no crystal balls

How many experts predicted at the start of the season that no Canadian teams would make the NHL playoffs? Who picked all the right teams in their NCAA bracket? Which political pundits correctly called a Liberal majority at the beginning of the last election campaign? Who said six months ago that Donald Trump would still be the frontrunner for the Republican nomination come April?

As the saying goes, predictions are tough, especially about the future. Look at the people with real expertise in everything from sports to politics. Despite spending their days and nights absorbed in the most up-to-date information, despite getting to talk to the insiders and experts on a regular basis, their prognostications aren’t consistently reliable. If an NFL panellist gets slightly more than 50 per cent of his predictions right, he’s considered a genius.

Why would we expect investing to be any different? Is it really believable that a stock broker in Ottawa would have enough information to know which direction the market is going?

And it’s even harder to beat the market because the market already reflects the sum total of everyone’s expectations. You can pick the overwhelming favourite in a hockey game or election and look smart if they win. But the market prices the favourites accordingly, making it harder to make money off the easy choices. So don’t try to predict the future or believe anyone who says they can.

By: Mark Sutcliffe | 0 comments