My Four Best Investments

Over my financial career I have made many mistakes investing, however there are a few of my best investments. I have revised this list and now I have five (5) best investments.

My first investment (but not my best) is buying into the Federal Public Service Pension Plan. Thanks to blind luck, I was able to do this, and while it is my biggest investment (yes, even more than my house), it is not the investment that I am most proud. As I outlined in a previous post, thanks to some excellent timing (read luck) on my part I was able to transfer my Nortel Pension into the Federal Public Service Pension plan. That will (hopefully) allow me to actually retire.

best investments
Trent University

My 3 best investments (of which I am equally proud) are:

  • A Bachelor of Arts Degree from Wilfrid Laurier University
  • A Bachelor of Kinesiology Degree from Acadia University
  • An Honours Bachelor of Science Degree from Trent University (and hopefully a teaching diploma from Queens University)

As you can tell from the list these are the three degrees that, thanks to some help from my RESPs ,that I helped my daughters’ receive. My youngest daughter has just graduated from Trent University, and as I mentioned in the post I did for me eldest daughter’s degree So That is What $50,000 looks like, it was another excellent investment. Whether my son goes to post-secondary education, we shall see (we are hopeful). So far aside from being able to retire, I feel I have gone 3 for 3 on these investments. I think this makes these investments, my best.

Must I Help?

This is not to say, that if you have decided not to help your children with their post-secondary education you are a bad parent. Far from it, many folks just cannot afford to help their kids. I have made some awful investments in my time, luckily I have made a few good ones as well.

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Is Your Toilet Flushing Hot Water ?

That is a very odd title, but it did happen.

My Brother had just moved into a new town-home complex, and there were a few idiosyncrasies that he found in his new place, but he didn’t notice this issue for a little while after moving in. He only noticed one day when he sat down and felt the warmth emanating from the commode, and only then realized that his toilet was connected to the hot water system for his house (not a huge issue, but it would waste a little money for a long time).

toilet flushing hot water
No, it wasn’t that hot

Financially Flushing Hot Water?

Are you flushing hot water in your financial world? How many fees are you paying that you are unaware of, or worse, are ignoring? What kind of fees am I commenting about?

  • Bank fees, do you still pay those? There are so many banks that offer zero fee accounts, why are you flushing that hot water (money) down the toilet?
  • Entry fees, exit fees and high MER Mutual funds? Seriously, how many times do we (pretty much everyone writing about investing) have to write about this topic? Evidently, we have not hit the maximum count yet. They are called Index Funds, look it up.
  • What are you paying in Insurance rates? Are you shopping around? Remember that insurance is only for ” … in case stuff happens …” (to paraphrase Chris Rock).  If you are overpaying for insurance your money is flushing away.
  • Memberships that you are no longer using? That fitness club membership, are you using it? Do you really read the newspaper?

Am I missing any other Financial Toilets that flush hot water ?

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Robo-Advisors a God Send to Investing ?

Robo-advisors Are They Really That Smart?

Robo-Advisors are a hot topic that has come up many times lately, and I think I (as a former programmer and current IT person) have a unique perspective on this topic (having a journeyman’s understanding of financial matters as well). Are Robo-Advisors something new, or just old tricks wrapped in technology?

A simple explanation of this investing vehicle from Wikipedia is:

Robo-advisors are a class of financial adviser that provides portfolio management online with minimal human intervention.

Robo-Advisors god send or the hand of the devil
Hand of God ?

What qualifies as a Robo-advisor? Pretty much anything that is a very loose set of heuristics and ideas, along with some technical flim-flammery. My first piece of advice is if anyone says they have a Robo-Advisor taking care of their investments, ask them if they understand what they are using. Handing your money over to an (allegedly) automated system that you don’t understand is just as bad as handing it to a Human Advisor who has little or no talent in investing. A task badly done by technology or a human is still a task badly done.

An important thing to remember is the Robo-advisor simply does what it is programmed to do, it “decides” on the basis of what it is told to do (it does not learn, or diverge from its programming). Many marketing blurbs speak of expensive algorithms that assure maximum investment performance, but I am skeptical.

A key thing to understand in this area, is the investing philosophy the Robo-advisor is going to follow. Here is a simple philosophy and method to go with it.

Passive Investing with Quarterly Balancing

Philosophy: set up a diverse portfolio with the following configuration:

  • 25% Canadian Index Fund
  • 25% US S&P 500 Index Fund
  • 25% International Index Fund
  • 25% Canadian Bond Fund

You recognize that as a simple couch potato configuration. Buy low mgmt fee ETFs or Index Funds.

Algorithm: Every 3 months, compare holdings percentages and if any position is greater than 5% off 25% (plus or minus) rebalance using existing funds.

This pretty much is what a Robo-Advisor might do for you (note you can do this as well, you are simply automating it). From a simple point of view, this seems like a relatively good way of doing things, or does it?

What the philosophy doesn’t say:

  • What funds or ETFs should be used, so what stops the programmer of the Robo-Advisor to have you buy funds with a company that might pay them a fee? This kind of “buying bias” is being seen in the market place already.
  • What stops the program from suddenly changing funds, and churning your money (i.e. losing it to purchase fees and such)?
  • How much are you going to pay for the service? Are you paying for something you could just as easily do yourself (yes, I realize many folks don’t want to do this, but that does not mean they should be paying through the nose for the privilege either).

These are just some very simplistic questions to ask.

I’d really like to see some kind of regulation or standards in the area of Robo-Advisors, but I suspect specific regulation may not occur until there is a scandal of some kind (in the area).

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It’s A Wonderful Life (Financially?)

When the holiday standard It’s A Wonderful Life was first released it was pretty much panned as being too treakly sweet, and having no substance. The movie languished for many years, but thanks to a disinterest by its distributor, it started being played by local TV stations at Christmas time, and thanks to that it is now the Holiday Standard that it is today.

Amazon
If you wish to purchase this classic from Amazon Click Here


Now the main reason the movie became popular was due to its distributor not charging TV stations to air it, and thus the Local TV had free content to play during Christmas (and thus they made good coin off it with their own advertisements). The rest is history (right Uncle Willy?). There is a great deal to learn about banking in the USA in this movie if you look closely, but that is not the point of this piece. My favorite quote is from Nick talking to

“Hey look, mister. We serve hard drinks in here for men who want to get drunk fast, and we don’t need any characters around to give the joint “atmosphere”. Is that clear, or do I have to slip you my left for a convincer?”

What does this have to do with Personal Finance and Investing? Indulge me this one is another one of my “Hail Mary” stretches of thematic premise.

Strangely Index Funds have been around for many decades (in one form or another), but it is only in the past 10 years or so (maybe less) that they have suddenly come into vogue.

If you are to believe the media Index Funds started with John Bogle and the Vanguard Group, in fact:

Bogle started the First Index Investment Trust on December 31, 1975

So almost 40 years ago Index Fund investing began. The beginnings were inauspicious, but as with “It’s a Wonderful Life” after many “experts” scoffing at the idea, Index Fund investing (or Couch Potato Investing, or one of its many other names) is mainstream and beloved by investors all over the world (OK, now I am pouring it on a bit thick).

Of course, as we know from an 80’s video, It is a Wonderful Life

Wonderful Life – Black

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“I’m an indexer. I don’t care what the indexes did today!”

“I’m an indexer. I don’t care what the indexes did today!” 
— Preet Banerjee (2014)

These words are from financial Media Maven Preet Banerjee , and in that quip he captures the essence of the Index Investing. Couch Potato investing is another name for it.

Balanced in What Way?
All Index Investors Do is Balance

Some think it is prudent to monitor the stock market closely. I know people that do that. Some  people get upset by the “moods of the markets”, my question is: why?

If you are that worried about your investments, maybe you should not be investing in stocks ? If you are a day trader then yes, you should be on top of things (and NO you should not be a day trader, if you are asking me), but if you feel your investments are that “tenuous” then  you really need to review your Savings plan, and maybe get out of securities?

Couch Potato investing  assumes you are not changing your portfolio often. I guess your only problem after that is figuring out what you can do with all that spare time? There are enough things in life to worry about, watching your investments daily simply makes you more tense.

How you rebalance your portfolio is up to you, you can add more funds and use that to get back to your goal distribution of funds, or you can “buy and sell” to rebalance the existing funds. No matter how you rebalance, that is about all you are doing with your investments.

What if the markets crash? (yes that is a link to the 2008 crash that we all seem to have forgotten about) Not much to do about it, better to not look then especially! Market corrections happen, as with most investing strategies, attempting to dodge a market correction is a tricky dance, and most “market timing” strategies will fail in the long run (in my opinion, of course). I am sure there are folks who will sell you a great “market timing” strategy, and they are rich (selling the strategy, not the market timing). I am investigating the Fibonacci method for market timing. Anything that has Fibonacci in it is fun to read (but NO I will not use it, I just like reading about strategies and attempt to debunk them).

Index Investing Bubble ?

Most of the folks who claim to be Index Fund Investors (or Couch Potatoes), typically are not solely invested in Index Funds (or ETFs). They will hold securities in single companies as well, or they might use Dividend Investing ideas as well.

I am mostly invested in Index Funds and Index Based ETFs, however, it is not completely. I do hold a few stocks in a few of my portfolios.

Why am I still holding these stocks? Mostly they keep performing well, and pay nice dividends, I have expunged a few Single stocks from my RRSPs (Power Corp, to name one), but I hold onto my other Single Stock darlings mostly because I can’t seem to convince myself to sell them (and simply buy more Index Funds). Am I a hypocrite? If hypocrite is “Do as I say, not as I do”, then yes, I am an Index Fund Hypocrite, or maybe a Couch Yam?

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