DIY Balanced Funds for Investing

I always find it interesting that most of the times I have spoken to an “investment person” I have been told What you need is a Balanced Fund, which on face value is a good piece of advice. Rarely have I walked in and made the following statements:

  • I love High Tech, what I want to do is buy a single stock that has very high risk and very high potential pay back.
  • I feel comfortable investing in hedge funds, and want to explore that further
  • Bangladesh and Russia look like interesting investment opportunities, lets put all my money there.
  • I don’t trust the stock market, so all I want are Canada Savings Bonds

Most of the questionnaires I have filled in would not show that, however, I do find it interesting that a lot of the wording in these questionnaires are very “Balanced Fund Sympathetic” (but most questionnaires tend to herd the subjects towards the middle of the pack).

While I realize everybody needs to earn a buck, the Balanced Fund gig pays pretty well with the CIBC Balanced Funds having Fund Expenses of 2.55% , someone is living the high life on those fees. I do like the extra 0.10% in “Trading Expenses”, who gets that money? Oh their traders? Mostly I would guess.

So if you read the CIBC (or TD or whoever) Quarterly Portfolio Disclosure you can see that the top few investments in the fund are:

Balanced in What Way?
Balanced Doesn’t Have to Mean Expensive
  • Cash & Cash Equivalents 4.87
  • Government of Canada, 1.50%, 2023/06/01 4.46
  • Toronto-Dominion Bank (The) 2.83
  • Royal Bank of Canada 2.71
  • Government of Canada, 4.00%, 2041/06/01 2.05
  • Bank of Nova Scotia 2.04
  • Canada Housing Trust No. 1, 2.35%, 2018/12/15 1.97
  • Canadian Imperial Bank of Commerce 1.78
  • Korea KOSPI 200 Index Future, December 2013 1.77
  • Suncor Energy Inc. 1.75
  • Bank of Montreal 1.47
  • Japan TOPIX Index Future, December 2013 1.36
  • etc., etc.,

If you were really a wild investor you could simply mimic this list, but I suspect you’d end up paying a lot in trading fees. The other option is to group the list into and see if you can mimic it using simple Index Funds. Yes this might take you about an hour or two, but then you have about the same mutual fund, but with Index Fund (or ETF) Management Fees.

Let’s Have Fun!

Want to really have fun? You know when I ask that, it’s going to be fun, but the next time your “Investment Person” proposes a similar Balanced Fund (my apologies to CIBC all the banks have expensive Balanced Mutual Funds, not just them) ask them if they could create an investment plan using Index Funds for a lower MER. Wonder what the response to that query might be?

Do you really want to pay a 2.55% fee (every year) ?


De-cluttering Financially (redux)

Do you do regular clean outs of your financial life? A while ago I brought up De-Cluttering Financially, and it’s importance in your financial life. At the time I had many old and tatty securities lieing around my financial world and I really did need to clean up.

Since then I have pretty much cleaned up those crappy old mutual funds, however I have also cleaned out:

  • A bunch of Common Stock holding that I had, that were doing me no good (including some left over Nortel), any money made from those sales went into Index Funds and/or ETFs.
  • Some remaining useless mutual funds that needed to be gone (again all money funneled back into my passive Index Investments).
  • I had and RRSP and a LIRA disappear but that was doing a service buyback into the Federal Government Pension (expensive, but worth the money). Two less things to worry about.
  • A couple of old investing accounts that were hanging around as well (two RESPs for two of my kids, which now are at zero. I thought I closed them, but they persist to live on, it seems)

Just point. Junk disappears. Save $10 when you book online from 1-800-GOT-JUNK. Book Now!

I do have 1 more thing I need to get rid of and that is a perfectly useless LIRA set up with Sun Life that I need to transfer into a much better investment fund. This one is a messy old thing that I had forgotten about and it has given me almost 1% growth over the 15 years I have held it (yes, the only thing worse I could have done is left it in Nortel).

How goes your financial de-cluttering? Getting it done?

Home Organization

No it is not easy

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As I mentioned one of the common themes I hear from folks when I attempt to chat with them about how they are saving for their future, is the Tyranny of Choice, and the mental gridlock all of these possible choices can cause for some folks.

I do get lots of questions about, “… what in your opinion is the best vehicle for investing?”, and the easiest answers are:

  • Can you be more specific?
  • It depends on what your goals are, what are your goals?
  • Why does my opinion matter to you?

On this Holy Weekend What is the True Faith of Investing?

hat is the True Faith of Investing?

Note I never answered the question? My advice is usually to go learn some stuff and decide for yourself, since I never feel too comfortable telling people what to do with their money.

As an example, you want to open an RRSP, what do you do? First you find out whether you can put money into an RRSP (do you have RRSP space), then you look into the various RRSP savings vehicles out there. If you are a TD Bank customer, you can set up:

  • A TD Mutual Fund RRSP Account
  • A TD GIC RRSP Account
  • A TD Waterhouse  self-directed RRSP account
  • I am sure a plethora of other things

Notice, what vehicle you can choose ends up being dictated depending on which savings vehicle you try to use (i.e. if you choose a TD Mutual Fund RRSP account, you can buy TD Mutual Funds (and not all of them either)), so the advice here is try to keep as many options open, and set up as flexible an account as possible. In my case I set up a TD Waterhouse Self-Directed RRSP account (but if you bank with BMO you can set up a Nesbitt Burns account, and with other banks you can use their brokerage house, or even some of the on-line brokerage firms).

Self-Directed RRSP accounts are more flexible and more expensive administratively (for the account) (usually), so you need to figure out what makes you comfortable. The other thing with Self-Directed accounts is the SELF-DIRECTED part of it, you are going to make the trades and such in the account. If you don’t feel safe doing this, then maybe you need a full service brokerage house?

As you can see in the past few paragraphs, I haven’t really even touched on the title of this post: which is the better choice ETFs, Mutual Funds, Index Funds, etc., and you know why? It’s nearly the last decision you make you have to set all this stuff up first.

Don’t worry about deciding, worry about getting started on getting the infrastructure in place. You’ll have time to finally decide what you want to buy, but you will need to do a lot of groundwork first.

It took me about 3 weeks to get my Self-Directed RRSP in place and running (so that I could actually make a trade), anybody got it set up and flying sooner?




The Tyranny of Choice

There are choices for everything in this world, and with that, we now have an entire generation that cannot make decisions.

When I was a kid, we had 5 TV stations total (with cable). Kids now have thousands of choices. Coffee was coffee until all of the various flavours arose now. It is impossible to describe the list of possible choices.  Whatever happened to Henry Ford’s old philosophy, “You can have any colour you want, as long as it is black” (for the Model T, when it was first introduced)?

In investing and your money, the tyranny of choice is acute, if not rampant.

There used to be a few Mutual Fund companies. Now there are so many I could fill pages just with the name of the firms. Simply investing is now a minefield of ways to invest and who(m) to invest with  (not so long ago, you had to talk to a broker, and that was it), now you can invest through your Dunkin’ Donuts location (can’t you?).

The Tyranny of Choice has created cerebral gridlock for many folks. Since they have so many choices, they stop and choose not to choose.  Just because you are afraid to decide from 1,000 different possibilities doesn’t mean you should not choose (especially on the money side of things).

With investing, if you don’t know what you are doing, don’t know what to do, go find out, or find someone you trust to help you make the decision. The argument, “I can’t understand the difference between Mutual Funds, Index Funds, Active and Passive investing or any of that crap, so I just buy what my buddy the investment councillor tells me to buy,” is a cop-out.

How to Deal with Too Many Choices

Read, learn, plan and then act is the way to move forward. You can’t simply stick your head in the sand and hope no one kicks you in the butt (financially) because we know that someone with a big boot is out there waiting for you.

If you make a mistake, learn from the error, but at least you made a decision (unless that decision was to get a pay-day loan, in which case, that was a BAD decision), so be a grown-up and move on. Everyone makes mistakes. I can respect someone who makes mistakes (and learn). I can’t respect people who refuse to do anything.

Are you afraid of all these choices, or do you relish and enjoy your freedom of choice?


The Locked In Factor

No Not an LIRA

One of the things I have learned about working in the Technology world for over 20 years is that sometimes tunnel vision kicks in for decisions about what technology to use. I found a fascinating article in the Boston Globe by Leon Neyfakh that talks about how the Nuclear Reactor world is now technologically locked-in with a technology that was not the best one for Japan:

Japan’s reactors are “light water” reactors, whose safety depends on an uninterrupted power supply to circulate water quickly around the hot core. A light water system is not the only way to design a nuclear reactor. But because of the way the commercial nuclear power industry developed in its early years, it’s virtually the only type of reactor used in nuclear power plants today. Even though there might be better technologies out there, light water is the one that utility companies know how to build, and that governments have historically been willing to fund.

Economists call this problem “technological lock-in”: The term refers to the process by which one new technology can prevail over another for no good reason other than circumstance and inertia. The best-known example of technological lock-in comes from the 1970s, when VHS and Betamax, two different kinds of videotape, competed in the market until VHS gained a slight lead and then leveraged it to total domination. Whether the VHS format was actually superior to Betamax didn’t matter. After the lock-in, consumers no longer had a choice.

In the financial industry that is how a lot of us end up financially locked in to a specific savings product, like myself with my RESPs in TD Mutual Funds, I ended up financially locked in, because I didn’t really look at other savings vehicles that might have done better.

Feeling financially locked in is an uncomfortable feeling, but if you can change, it isn’t imperative that you jump (the opposite of locked in would be a financial joy rider who simply changes because something seems cool (much like technology junkies need new phones every year)), but you should at least figure out whether you are in the right place financially. All decisions in life should be revisited every once in a while to figure out whether your decision is still valid, and the argument I don’t have time to do that means you have decided your initial decision was valid and you will stick with it (but don’t get to complain about it later).

It is rare that any decision locks you into a single path financially (even with LIRA (Locked in Retirement Accounts) you can change the type of account the LIRA is), so take advantage of the freedom and make sure your decision still works, after all you don’t want to end up with a BetaMax financial solution now do you?


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