What’s 1% worth to you?

RYAN  By Guest Blogger Ryan Lewenza

Let’s face it, successful investing is hard. I’ve spent much of my adult life in a library or head down in a financial textbook trying to “figure out the markets”. But over time (and many lessons learned) you start to develop a framework and base of investment knowledge, helping to increase your odds of investment success. It’s no wonder then why the “average” retail investor so badly underperforms the market.

According to an influential study called the DALBAR Annual Report of Investor Returns, the average investor greatly underperforms the S&P 500. This, in part, is why we recommend investors buy inexpensive index-based ETFs rather than those expensive and often ineffectual mutual funds.

Over the last 20 years the average US mutual fund equity investor has returned a disappointing 4.67% annually versus the S&P 500 at 8.19%, resulting in an underperformance of 3.52% annually. While the study focuses on the average US investor, I’m confident the Canadian experience is much the same.

Given this reality what is an investor to do when the odds seemed stacked against them?

In this week’s post we examine the factors behind this underperformance and suggest ways to help mitigate against this undesired investment outcome.

The DALBAR annual report, which costs US$775 or a cool US$10,000 plus travel expenses for a one-hour presentation, can be summarized by these two lines taken directly from their website: “Investment results are more dependent on investor behavior than on fund performance. Mutual fund investors who hold on to their investments are more successful than those who try to time the market.”

More specifically the report cites three main reasons for the return underperformance: 1) a lack of capital and/or need for cash; 2) high management fees; and 3) investor behaviour.

In the table below we show the percentage contribution to the underperformance from these factors. The lack of available cash, and need for cash, contribute a combined 1.22% annually to the underperformance. On this particular factor I can add little advice on how Canadians should save more, other than to say that all Canadians, rich and poor, should have a monthly automatic savings plan which debits your bank account automatically for a set dollar amount every month.

Often people say they will save whatever is left over in the month. But there rarely is anything left over at the end of the month, especially given our inflated home prices, anemic income growth, and record debt levels here in Canada. So pay yourself first by debiting your bank account and investing those proceeds. Here I practice what I preach having an automatic savings plan going into my TSFA, which is how I ensure that I’m saving each month, and topping up my TSFA account (so important!). So to ensure you have money to invest as opportunities arise, use a monthly automatic savings plans by depositing money into your investment account each month.

Source: DALBAR Annual Report

The second important factor behind investor underperformance is high management fees. Here my solution is easy – have an advisor who charges a reasonable fee to manage your money (shameless plug, we charge clients a low, tax-deductible management fee of 1%) and who only invest in low-cost index-based ETFs. Since it’s near impossible to “beat the market” over the long-run, why bother paying some million dollar per year salaried Portfolio Manager who charges 2%+ and rarely delivers any alpha (return over the benchmark).

Currently, our ETF model portfolio has an average MER (there are nominal MERs with ETFs) of just 28 bps. So a client of Turner Investments pays an all-in cost of 1.28%, which again is partly tax deductible and includes other services such as tax and financial planning, on top of the investment management.

In contrast, similar balanced products from the banks and mutual fund companies cost 2%+. For example, the TD Comfort Balanced Growth Portfolio and Investors Group Canadian Balanced Portfolio come with an annual MER of 2.02% and 2.41%, respectively. Now if they are providing “alpha” then you could justify paying the higher fees (spoiler alert: they’re not).

To put this into perspective I ran some numbers looking at the impact on a portfolio paying a 1% fee versus 2%. For a $500,000 portfolio compounded over 20 years at a 6% gross return, the 1% fee portfolio would grow to $1,324,817 versus the 2% fee portfolio at $1,092,403, resulting in a difference of $232,415 in lost savings! And of this $232,415 in lost savings, $137,604 would go to the fund company or bank charging the 2%.

The Canadian banks made a profit of over $35 billion dollars in 2015. Do you really need to give them an additional $137,604 in fees over the next 20 years?

The last and most important factor to investor’s underperformance is investor behaviour. Broadly, this refers to mistakes investors make due to psychology, or behavioural biases. In the report it sites nine common behavioural biases, but we’ll focus on the two main ones – herding effect and loss aversion.

Herding effect refers to investors following what everyone else does (e.g., buying last year’s hot mutual fund or finally investing in the stock market late in the bull market). Loss aversion refers to a fear of loss in capital which often happens at the worst time or near the bottom of a bear market.

To help control these natural human emotions/behavioural biases, I suggest the following: 1) build a balanced and diversified portfolio which will lead to smaller drawdowns thus reducing the odds that you’ll capitulate and sell everything at the bottom; 2) rebalance your account 1-2 times per year, which helps you to remain disciplined and stay invested, while systematically have you trim winners and add to underperforming assets; and 3) remain laser-focused on the long term, since history clearly shows that over the long run equities and balanced portfolios will deliver the returns most need to retire comfortably.

To hit home this point, below is a table showing that the worst rolling 1-year total return in the S&P/TSX has been -39.2%, but as you extend your holding period to 10 years and beyond, there has never been a negative outcome based on rolling monthly periods. And as you lengthen your time horizon you get closer and closer to an average long-term total return of 9-10%. So don’t panic and sell at the bottom of inevitable bear markets. Instead, rebalance your account, add to your investment portfolio from your savings, and wait for the recovery.

So the question remains, “what’s 1% worth to you?”

Rolling Monthly Returns for the S&P/TSX Composite

Source: Bloomberg, Turner Investments
Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

124 comments ↓

#1 Euro observer on 01.07.17 at 4:35 pm

#80 MF on 01.07.17 at 10:55 am
#72 Euro observer on 01.07.17 at 7:57 am

Because there are jobs available.

I’m no real estate bull and I believe house prices here in the gta are are a hilarious joke, but we cannot deny a few factors here.

I was born here but my girlfriend is a recent immigrant from the Philippines. I’ve seen all her friends and relatives find decent paying jobs within weeks. They also live together and pool resources. They all feel comfortable and accepted too.

Again the housing market will implode when credit dries up (started already) but these gta haters on here are delusional.

MF
—————————
Correct, ‘decent’ jobs to justify (max) 30 % of current valuations.

If by decent you meant 12-15 $/hour which is an achievement for a new immigrant.

#2 Gasbag Boomer on 01.07.17 at 4:38 pm

Thanks Ryan, another interesting post. To nit pick, it should be “cites” not “sites”.

#3 Euro observer on 01.07.17 at 4:42 pm

Ryan,

I agree with the critique of the obscene fees of the mutual funds and the banks ‘investment portfolios’ which only fool wold buy (this is why doctors who invested in mutual funds can’t retire).

But why not just buy a diversified ETF (e.g. Vanguard, iShares) or set of ETFs at very little cost (0.1 – 0.5 % yearly fees) that is re-balanced by the issuer?

There are many tailored for the risk portfolios (e.g. income, growth) that are managed by very professional managers.

#4 Rich Mike on 01.07.17 at 5:13 pm

Sorry Ryan – a little off topic but this is interesting:

The price for detached houses sold in the City of Toronto last month averaged $1.29-million, down 4.4 per cent from the record $1.35-million in November. . .In the GTA as a whole, the price for detached properties averaged $1.01-million last month, a 4-per-cent decline from November. Yes, up from last Devember BUT slipped from November. The peak has happened, get ready for a bumpy ride to the bottom.

#5 Al on 01.07.17 at 5:19 pm

Wynne is never going to implement a 15% foreign buyer tax in Ontario because she owns a Rosedale Mansion as part of her retirement nest egg.

#6 rainclouds on 01.07.17 at 5:21 pm

Great Topic Doug (My Lickspittle moment:-)

Long term vision, a plan, and attention to detail (fees) is huge :

handing the heavy lifting over to qualified managers responsible to ME paid huge dividends financially and for piece of mind. You folks live and breathe (and strangely seem to enjoy) financial knowledge I simply do not care to learn.

Advice gleaned by The Greater Fool , Andrew Hallem, Warren Buffett, Jack Bogle et al have all helped steer me in this direction.

Like BOOM used to comment on, doing ok, dont have extravagant tastes, live how we want. No financial worries. Comfortable. only took 32 years:-)

#7 Ontario's Left Coast on 01.07.17 at 5:29 pm

Ryan, I just wanted to chime in to say how much I agree with you. I’ve done okay on my own in the past, but I’m a value investor by nature and have been sliced by falling knives on more than one occasion. Not the way you want to play for the long term.

Years ago, I turned most of my registered and taxable investments over to the wealth division of one of the chartered banks on a discretionary basis, and couldn’t be happier. The fees are right in line with what you quoted, performance has been decent and I can sleep at night. I maintain a small ‘fun’ investing account with a discount brokerage but the lion’s share goes to the pros. To my fellow dogs, I would strongly endorse Ryan’s suggested approach.

M49ON

#8 Context on 01.07.17 at 5:31 pm

Good evening Sir Lew and another great essay as usual because your on the mark again. Any type of mutual fund be it a bank or otherwise will eat your capital investment with the hidden sales fees, penalties, and administration costs. Not to mention the idiots behind the curtain who are making poor bets on your behalf. A mere 1% fee is a bargain when all is said and done.

#9 Unbalanced on 01.07.17 at 5:31 pm

That is one of the best explanations ever presented!!! Congrats. Well done and thanks. That is probably why GT hired you. WOOF!

#10 Don't Worry Al on 01.07.17 at 5:43 pm

New rules implemented by the Chinese government on those who are looking to exchange for yuans into foreign currencies might lead to a noticeable slowdown in the Canadian housing market, in which overseas investors are now playing a major part.

Beginning this month, mainland authorities will now be requiring documents providing details on the reasons for currency conversion, and when the money will be used. Improper use of the converted funds (e.g. the purchase of a residential property) will entail stiff penalties such as being banned from exchanging money, The Globe and Mail reported.

#11 JSS on 01.07.17 at 5:48 pm

Ryan,
Two questions:

1) Any idea what the average dividend growth rate is for Canadian dividend payers on the tsx?

2) Do the annual returns in the tsx chart you provided include dividends and reinvested dividends?

#12 Ace Goodheart on 01.07.17 at 6:02 pm

RE: “Let’s face it, successful investing is hard. I’ve spent much of my adult life in a library or head down in a financial textbook trying to “figure out the markets”. But over time (and many lessons learned) you start to develop a framework and base of investment knowledge, helping to increase your odds of investment success. It’s no wonder then why the “average” retail investor so badly underperforms the market.”

Well I kind of agree with you. I find the biggest problem that retail investors have is putting all of their money in one place. Whether it is a favorite stock, or a house, or a rental building, or a GIC or a bond or an ETF they like or a mutual fund, or even a certain sector of the market, retail investors do not, as a rule, diversify.

Second biggest mistake I find that the average investor makes, is buying high and selling low. This seems to be human nature. When a security is doing well, everyone buys it. When it goes down, they all sell. Again, people have to train themselves to be contrarian. Buy when things are doing down, sell when they are coming up. It is against human nature to do this, so you have to force yourself to think like this. We are herd creatures and acting opposite to everyone else is trained out of us early in our lives.

People also seem to believe that they cannot understand a security. This is especially true of stocks. I have seen people trying to predict what a stock will do by looking at graphs and charts. Or by reading about “market sentiment”. This is nuts. A stock represents a single piece of a going concern business. A business can only be successful, if it owns the means of production, of the products being consumed by the masses. That is the first thing that the business has to have. If you find that, then you start looking at metrics. The thing has to be profitable. To do that it has to be selling the products it produces, for more than it costs to make them. You find many “successful” businesses which are actually just borrowing their “profits” and/or selling shares so as to allow the directors to cash out and move on to something else. No matter how much the dividends are, how nice the balance sheet looks, no matter how flashy the product, if they are not selling for more than their costs of production, they are doomed. Look for a margin that matches benchmarks for their industry (they are all different).

All a person is doing when buying a stock is finding out two things:

1. What is everyone buying right now?

2. Who can make that for a profit?

Easy, right? It actually is.

Investing as above allows an investor to predict earnings reports before they come out. This is magic, as when an earnings report is good, the stock generally appreciates and when it is bad, the stock goes down. So you know that before it happens.

Also the above method allows an investor to confidently buy a security that has been beaten down for one reason or another, knowing that it will come back up again.

So if you do what I described above, and you do it for all sectors, on a broadly diversified platform, then you are able to run your own very successful little money machine. It takes about an hour a day to actually do it.

Of course if you don’t want to do that, then just find out who the top shelf fund managers are and buy their ETFs and let them manage the indexes for you. That is their job, anyway……

#13 crowdedelevatorfartz on 01.07.17 at 6:12 pm

Another excellent subject and explanation Ryan.
Keep up the nerdy, bookish financial lessons most Canadians sorely need. Whether they admit it or not.

@#74 Philandering Ex President
“Capitalism got rid of dynasties for reason to break away from feudalism.”
++++++++++++++++++++++++++++++++++++

Bwahahahahaha.
What planet are you from?
To say that uber capitalist Trump and his family arent a dynastic , nepotistic, insular family that trusts no one but each other is the height of ignorance. He’s already requested that his daughter and son recieve High Security clearance so he can discuss world affairs with them…..apparently his legions of military, capitalist leaders, and other “yes men” bootlicking sychophants arent up to the challenge he has to be able to ask his 30 something kids advice on world affairs.
Trump.
A cringe worthy national embarrassment that hasnt even scratched the surface of his own epic arrogant stupidity.
Hubris and the fall should be amusing to watch over the next 4 years.
The ultimate reality TV

#14 Context on 01.07.17 at 6:30 pm

#3 Euro observer:- The problem will always be with the issuer, and this becomes a gamble because too many don’t know what the hell they are doing.

#15 Andrew Woburn on 01.07.17 at 6:43 pm

I was planning to do a little reorg of my wife’s investments and, for example, shuffle some securities between her RRSP and her TFSA. I intended to trade wife’s TFSA cash for wife’s RRSP shares at Fair Market Value on the day of transfer.

The advisor at the online brokerage said government regulations no longer permit such direct swaps although it used to be possible. Has anyone else come across this problem? Is the advisor simply wrong?

If this right, what is the point? For a few bucks in trading commissions, I can get the same result anyway.

#16 Polls R Phake on 01.07.17 at 6:48 pm

Apparently the Russians hacked global warming so they can make record profits with Gazprom:

https://www.rt.com/business/372932-gazprom-record-high-europe/?utm_source=browser&utm_medium=aplication_chrome&utm_campaign=chrome

#17 Ronaldo on 01.07.17 at 7:12 pm

Not every mutual fund company is created equal. I have been dealing with PHN for over 25 years and have had superb returns and they have one of the lowest mer’s in the industry. Last years returns over 15% in a balanced medium risk portfolio with a average MER of .97% and a personal advisor to boot (all included). Usually meet once a year to go over things but most of the time its on the phone. I generally choose the funds but have him review and discuss with me. It’s worked out very well.

#18 Ryan Lewenza on 01.07.17 at 7:16 pm

JSS “Two questions: 1) Any idea what the average dividend growth rate is for Canadian dividend payers on the tax? 2) Do the annual returns in the tsx chart you provided include dividends and reinvested dividends?”

The TSX dividend growth rate is around 5% of the top of my head. Yes the returns cited include dividends as it total return. – Ryan L

#19 Barb on 01.07.17 at 7:25 pm

“…In the report it sites nine common behavioural biases,…”

should be spelled “cites”

I know Mr. L. wants a perfect blog post.

#20 Meh on 01.07.17 at 7:44 pm

shameless plug, we charge clients a low, tax-deductible management fee of 1%) and who only invest in low-cost index-based ETFs. Since it’s near impossible to “beat the market” over the long-run, why bother paying some million dollar per year salaried Portfolio Manager who charges 2%+ and rarely delivers any alpha (return over the benchmark).

Currently, our ETF model portfolio has an average MER (there are nominal MERs with ETFs) of just 28 bps. So a client of Turner Investments pays an all-in cost of 1.28%
———–
Orange guy wants 1.07%.

You’re kidding! One point zero seven per cent! What an outrageous amount to charge without any advisor to help minimize taxes, plan retirement strategies, do lifetime wealth forecasts, help with estate planning, income-splitting, or advise on real estate, insurance, car-financing or mother-in-law strategies. — Garth

#21 Influenza on 01.07.17 at 7:59 pm

Influenza is back.

#22 BobC on 01.07.17 at 8:07 pm

I can think of a 4th reaso. Something you nor Garth ever mention. Boredom. A ETF based, nicely balanced portfolio is boring. No big gains and no big loses. Just slow steady growth.
A guy like me has to fight with himself to keep my hands off of it.
Oh well, I’ll just let it grow.

#23 Context on 01.07.17 at 8:23 pm

Did I get tipped off, as what does this mean for an investment portfolio? T2 won’t be attending the Trump inauguration ceremony, but will tour Canada instead for tea parties in the middle of the winter. Sounds reasonable does it not, or is there something else we have not been told. T2 never received an Official Invitation from Washington. :(

#24 Dwilly on 01.07.17 at 8:29 pm

Could you elaborate on what is the “lack of cash” or “need for cash” factors? I understand how fees and behavior are compared (a high fee vs a low fee portfolio, for example), but what does it mean that “a lack of cash” caused underperformance of a portfolio? Doesn’t lack of cash to invest mean you don’t have a portfolio? :)

#25 crazyhorse on 01.07.17 at 8:42 pm

Sure, remain invested in US economy while a crazy president who doesn’t have the least understanding of international politics, diplomacy, economics or trade, is going to take over.

YOu will be just providing an exit to all those smart ones who bail into safer investments than S&P500.

#26 Freedom First on 01.07.17 at 8:44 pm

Yes. Turner Investments. They are a bargain price for what you are getting for your money.

For myself, I like having as many liquid income streams as possible from as many different asset classes as possible, stretching globally, not being vulnerable asap, cash, and 0 debt.

I owned and lived in 2 different houses for years in my life. Which, of course I bought when everyone else was selling. I feel like I was forced to buy. And I never bought 1 until my net worth was worth more than the house. I was 34. Even though I was on my own at 17 with only the clothes on my back, through unfortunate circumstances. Took Business at night school. I had to be creative and work hard. As I am a man. You may not be impressed, but I sure as hell am.

Thought of being a landlord, but then I thought If I don’t want my own or anyone elses wife, why on earth would I want tenants. My peace of mind is priceless. And besides, R.E.I.T.’s are easier & better in so many ways, plus, I am a Lover not a fighter.

Also Remember, you can have anything you want, all you have to do is pay for it. However, wanting everything now has consequences. Choose wisely, with the big head.

#1
Freedom First
Master of Freedomonics

#27 Freedom First on 01.07.17 at 8:49 pm

#24 Dwilly

You’re fired!

#28 A belieber on 01.07.17 at 8:52 pm

So a client of Turner Investments pays an all-in cost of 1.28%, which again is partly tax deductible and includes other services such as tax and financial planning, on top of the investment management.
……………………..

When I sell my Bieber collection for the mega bucks I’m bringing at least half of it to you to invest, the rest I’m gonna spend on girls and shoes.

#29 Context on 01.07.17 at 8:53 pm

#24 Dwilly:- What do mutual funds do with a lack of cash in a crisis with everyone selling out? They sell the portfolio out in a panic to raise cash sending unit values down a dark hole.

#30 Russ on 01.07.17 at 9:13 pm

Euro observer on 01.07.17 at 4:42 pm

Ryan,
But why not just buy a diversified ETF (e.g. Vanguard, iShares) or set of ETFs at very little cost (0.1 – 0.5 % yearly fees) that is re-balanced by the issuer?

There are many tailored for the risk portfolios (e.g. income, growth) that are managed by very professional managers.
=============================

Hi Euro,
The F.A. that I use, fee based, does much more than look after the financials part of the portfolio.

They want to know lifetime goals (travel, boat or motorcycle purchase.. in that order, monthly income expectations after TTJ&SI* (contract work) and other things). Followed by monthly income requirement in retirement and how long do you expect to live? E-funds don’t ask.

In my mind, tax planning is a huge part at the start of the relationship, especially if your spouse is an artist, like mine, and the other has much higher income. E-funds don’t ask.

I keep a hobby account (unknown to the F.A. lads) trying to weight according to Garth’s recommendations. This is 10% of over-all (financials) and keeps me from meddling too much with the pros. It includes E-funds.

When I start drawing income from the pile these guys will be gold. They know us, will balance without consult and keep a tax-efficient monthly stream entering our working account so we can be anywhere that the missus & I desire.

Starting next year!

cheers, R

*take this job & shove it

#31 Tony on 01.07.17 at 9:32 pm

We’ve heard of Ringling Brothers Circus, well the stock market has become Rigging Brothers Circus. Come watch the high flying act on the flying trapeze.

#32 Allegory of the Cave on 01.07.17 at 9:53 pm

Good info in this post, however Id like to address a few points.

1. “Let’s face it, successful investing is hard. ”

This may have true at some point in time in the past for the retail investor, but in 2016, is a “couch potato”portfolio really that hard?

2. “For a $500,000 portfolio compounded over 20 years at a 6% gross return, the 1% fee portfolio would grow to $1,324,817 versus the 2% fee portfolio at $1,092,403, resulting in a difference of $232,415 in lost savings! And of this $232,415 in lost savings, $137,604 would go to the fund company or bank charging the 2%.

The Canadian banks made a profit of over $35 billion dollars in 2015. Do you really need to give them an additional $137,604 in fees over the next 20 years?

Should you really give a financial advisor over 232K over the next 20 years? This is another viewpoint. The service you provide would cost one almost a 1/4 million dollars(~1%) over 20 years in the scenario above.

“So the question remains, “what’s 1% worth to you?”

Perhaps this could be rephrased as, “what’s over 232K worth to you”?

One can manage a “couch potato” portfolio in less time than it takes to read this blog daily.

Since it has been correctly pointed out the one cannot reasonably expect someone to deliver “alpha”, the only value I see in the 232K fee is the tax and financial planning service (232k buys a lot of hours of tax and financial planning!) and perhaps a babysiting service to mitigate the client from performing some of the three no-nos pointed out above. The latter I would say is the real value in the fee for those who are aware that they require this oversight AND know that they would actually listen to their advisor when the SHTF.

What’s over 232K worth to you?

#33 Ponzius Pilatus on 01.07.17 at 10:20 pm

Garth,
This Lew guy is just going on and on.
Please ask him to provide links, like you ask from us blogdogs.
Every successful presenter knows he has only 15 seconds to capture the audience.
Probably the worst blog ever.

#34 Bottoms_Up on 01.07.17 at 10:22 pm

Ryan do you support people with defined benefit pensions (ie, 10% of paycheque is already forfeited for the future) also saving? At what point is someone saving too much?

#35 Ponzius Pilatus on 01.07.17 at 10:27 pm

Me thinks that Lew should take out one of his three Ferraris once in a while to get some hot chicks.
Way better use of time than looking at graphs all day.

#36 Bottoms_Up on 01.07.17 at 10:27 pm

#24 Dwilly on 01.07.17 at 8:29 pm
———————–
Lack of cash–can’t buy stocks when on discount.

Need for cash–selling your holdings to raise funds.

#37 Smoking Man on 01.07.17 at 10:42 pm

Back yard wisdom.

Humans belive they are the superior species on earth.

I’m going with dogs. Unconditional love. Lie around all day wagging tail. A milk bone like winning the lottery.

Always happy.

You buggers can learn alot from them.

Never heard a dog blame anyone for there oun shot commings

Dr hammered out of his mind, Smoking Man
PhD Dog-O-nomics.

Good night.

#38 Meh on 01.07.17 at 10:51 pm

#20 Meh on 01.07.17 at 7:44 pm

Orange guy wants 1.07%.

You’re kidding! One point zero seven per cent! What an outrageous amount to charge without any advisor to help minimize taxes, plan retirement strategies, do lifetime wealth forecasts, help with estate planning, income-splitting, or advise on real estate, insurance, car-financing or mother-in-law strategies. — Garth

———————-
Oh, thats better – toss in a free ice cream and I will think about it.

You forgot the free sprinkles. — Garth

#39 Context on 01.07.17 at 10:53 pm

The writing is on the wall for Canada. Kellyanne Conway who was Trump’s campaign manager cancelled her event in Calgary for January 12th at the Pallister Hotel. It was a fundraising dinner for a charitable event, and all tickets will be refunded.

#40 Joseph R. on 01.07.17 at 10:55 pm

#24 Dwilly on 01.07.17 at 8:29 pm
Could you elaborate on what is the “lack of cash” or “need for cash” factors?

——————————————-

1. Lack of availability of cash represents the investor return that is lost by delaying the investment.

2. Need for cash represents the percentage of investor return that is lost or gained by withdrawing the investment before the end of the period being measured.

Source: https://globenewswire.com/news-release/2016/05/23/842576/0/en/Better-Investment-Recommendations-equals-Greater-Returns-DALBAR-Annual-Report-of-Investor-Returns-Says-Not-So.html

#41 Smoking Man on 01.07.17 at 11:04 pm

DELETED

#42 Nonplused on 01.07.17 at 11:06 pm

“So pay yourself first by debiting your bank account and investing those proceeds.”

But therein lies the problem. If most Canadians have nothing left at the end of the month, and many have to draw on home equity loans just to fix the Buick, isn’t a monthly installment plan just effectively borrowing from your HELOC to invest? And if you are going to do that, why not just pull it out of the HELOC all at once and go big?

Sure, monthly prearranged deductions can help with discipline, but only for those who have some money left at the end of the month. Many Canadians don’t.

Sure, many Canadians could pull Johnie out of hockey and save that money (or not borrow it) but they aren’t going to do that. We have been sold an idea of what our lives should look like and the financing to achieve it where wages aren’t enough, and everybody’s signed up. Unfortunately, monkey see monkey do, so even those folks who might have been inclined not to by the iPad can’t help it anymore.

#43 Polls R Phake on 01.07.17 at 11:12 pm

DELETED

#44 G. Soros (ha got them again) on 01.07.17 at 11:14 pm

What you forgot to mention, Ryan, is that for every investor who “under performs” the market there is a guy like me soaking up the difference. Actually not for “every investor”, I take them down by the thousands every day. Where did you think that “under performance” went? I got it, and I bought a yacht and a jet. And a Bentley. And a couple high end wives over the years. President elect Trump has nothing on me but flash.

So not every fund manager under performs the market. That money went somewhere. Got to go now the SEC is calling again.

#45 just a dude on 01.07.17 at 11:26 pm

Ryan, great post. Very informative. Thank you.

#46 Smoking Man on 01.07.17 at 11:43 pm

Searching for the truth.

Lies somewhere between the second glass of wine and the end of the hard stuff hidden.

Don’t go there. You will not like what you see.

#47 WUL on 01.07.17 at 11:45 pm

To my Ukrainian friends on January 7, in particular on the harsh, barren Prairies which they built and where they settled to enrich the CPR:

Merry Christmas

#48 Smoking Man on 01.07.17 at 11:47 pm

When I called batman on cad bonds a week ago.Bet accordingly

Eat my brilance. Non ufo beulivers

http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

#49 Smoking Man on 01.07.17 at 11:55 pm

Sucks knowing that lenord cohen is decomposing in a pine cheap box.

His wish….. fker knew shit .

#50 Debt's Dark Embrace on 01.08.17 at 12:10 am

#32 Allegory. BINGO!

#51 WUL on 01.08.17 at 12:48 am

Re: Reversion to the Mean and Hot Real Estate Markets:

Last night about this time I submitted an idiotic and off topic comment about the Leafs and ‘Nucks occupying playoff spots. Within 24 hours, no such luck. Losers.

Residents of the 416 and 604 should pack up their troubles in their old kit bag and move to the 403.

#52 Braj on 01.08.17 at 1:05 am

#33 Ponzius Pilatus on 01.07.17 at 10:20 pm
Garth,
This Lew guy is just going on and on.
Please ask him to provide links, like you ask from us blogdogs.
Every successful presenter knows he has only 15 seconds to capture the audience.
Probably the worst blog ever

Hence the reason we keep seeing you around..

#53 Peter.Engy on 01.08.17 at 2:57 am

Garth, is the 1.28% on total asset every year? Or 1.28% from gains every year?

#54 No Canada, No on 01.08.17 at 3:03 am

Why stop at paying 2%+ to the banks for their financial services? 1%+ over 20 years is a lot, too.

#55 Stock Picker on 01.08.17 at 4:13 am

If the balanced system were working so well then wouldn’t the portfolio be up at least par with the index? You could have had a monkey throw darts at the TSX this year and made twenty percent. Overworking the portfolio cost small investors big time this past year.

#56 Andrew t on 01.08.17 at 5:25 am

#16 Polls R Phake on 01.07.17 at 6:48 pm
Apparently the Russians hacked global warming so they can make record profits with Gazprom:

https://www.rt.com/business/372932-gazprom-record-high-europe/?utm_source=browser&utm_medium=aplication_chrome&utm_campaign=chrome

Your desperation is quite sad, really.
I might need to start humouring you out of pity.

#57 When Will They Raise Rates? on 01.08.17 at 6:11 am

DELETED

#58 Ryan Lewenza on 01.08.17 at 7:28 am

Dwilly “Could you elaborate on what is the “lack of cash” or “need for cash” factors?”

A need for cash refers to investors who pull out money from their investments due to either planned reasons (i.e. need money for home downpayment) or unplanned reasons (i.e. they need to bail their kid out from jail). Basically investors pulling out money at inopportune times. The lack of cash refers to investors not putting in new money during selling offs allowing them to take advantage of the lower prices/valuations. – Ryan L

#59 KoolAid on 01.08.17 at 7:30 am

Future returns may differ in the next 25 years in our everything, everyone, everywhere connected world.
Not sure overall capital structures will fully resemble current structures, service values may shit disproportionately as technological advancements continue to disrupt all industries, financial services included.

#60 maxx on 01.08.17 at 7:46 am

#23 Context on 01.07.17 at 8:23 pm

“Did I get tipped off, as what does this mean for an investment portfolio? T2 won’t be attending the Trump inauguration ceremony, but will tour Canada instead for tea parties in the middle of the winter. Sounds reasonable does it not, or is there something else we have not been told. T2 never received an Official Invitation from Washington. :(”

OMG.

Unrecoverable error if an invitation was issued to the leader of the selfie brigade.

“The budget will balance itself”, eh wot?

Not bloody likely. Either way, whether invited or not, this does not augur well.

#61 Ontario's Left Coast on 01.08.17 at 8:00 am

#26 Freedom First on 01.07.17 at 8:44 pm
Yes. Turner Investments. They are a bargain price for what you are getting for your money.

— Question for FF the man-stud: Is it possible for you to post a comment without the word ‘Yes’ at the start? I believe I know the answer: ‘No.” Also, we’ve heard the “…on my own since 17’ bit a thousand times, so can you give it a rest this year? Thanks.

#62 Jungle on 01.08.17 at 8:02 am

@Allegory of the Cave

Maybe for a select few could handle DYI but after speaking to many friends, family and co-workers about investing, I understand why the Dalbar studies show most investors underperform, mostly due to flawed behavior.

So 1% seems like a lot, when in fact for most they would net more, using a fee-only advisor and eliminating their behavioral mistakes from the equation.

#63 Ryan Lewenza on 01.08.17 at 9:04 am

Bottoms_Up “Ryan do you support people with defined benefit pensions (ie, 10% of paycheque is already forfeited for the future) also saving? At what point is someone saving too much?”

Yes if you can get one. The percentage of people with a DB plan has declined steadily over the last few decades from roughly 40% in 1980 to around 20% today. And it’s only going lower, so it’s paramount that people routinely save money each month or year to ensure they have a decent nest egg in retirement. With respect to your second question, yes people can save too much as they forgo living a full life today, saving for their future. So its a balance. Save routinely but not so much that you’re not enjoying life today. Take a vacation, go for diner or to the movies. But make sure you’re putting a little away each month. – Ryan L

#64 Ryan Lewenza on 01.08.17 at 9:16 am

No, Canada, No “Why stop at paying 2%+ to the banks for their financial services? 1%+ over 20 years is a lot, too.”

We provide an incredibly important service to protect and grow Canadians savings. This includes managing their money, provide tax and financial planning advice, and sometimes just being a sounding board or voice of reason when the markets go sideways. I think a 1% fee is a fair rate to charge clients for our services. If people feel otherwise they can manage their money themselves through a discount brokerage (which has trading costs and if not done properly can result in financial ruin) or invest through expensive mutual funds or higher priced advisors. Against these options we believe we offer a great alternative for investors. – Ryan L

#65 Ontario's Left Coast on 01.08.17 at 9:19 am

#33 Ponzius Pilatus on 01.07.17 at 10:20 pm
Garth,
This Lew guy is just going on and on.

I disagree. This was an excellent, detailed post that taught me a lot. Maybe you should switch to Readers’ Digest…

#66 nutty squirrel on 01.08.17 at 9:59 am

I hear all the time 1% this 2 % that. You wrote the extra expense of the 2% in dollars but not 1%.

If someone made $100000 a year and had $500000 in investments the cost at 1% you charge is $5000. Over 20 years that is $100000. Not including the interest made on the money over 20 years. Quite a bit of money.

OK now I am told I can write off the 1% a year. How much does one write off – is it $5000 off my taxes. So how much does one save (in dollars) for the tax year?

#67 Eaglebay on 01.08.17 at 10:07 am

#25 crazyhorse on 01.07.17 at 8:42 pm
Sure, remain invested in US economy while a crazy president who doesn’t have the least understanding of international politics, diplomacy, economics or trade, is going to take over.

———–
You’re describing Trudeau perfectly.

#68 Eaglebay on 01.08.17 at 10:09 am

Ryan, do you mean “credit” your bank account?

#69 Ronaldo on 01.08.17 at 10:12 am

#32 Allegory of the Cave

You make some very valid points there.

#70 Ronaldo on 01.08.17 at 10:22 am

#47 WUL on 01.07.17 at 11:45 pm

To my Ukrainian friends on January 7, in particular on the harsh, barren Prairies which they built and where they settled to enrich the CPR:

Merry Christmas
————————————————————
Just as my grandfather did in 1911 when he moved his family of 7 at the time to the northern prairies of Sk. only to die broke in 1943 leaving the place to my father who could never get the place out of debt and he himself died in 1955 leaving his family bankrupt. And this was all due to my grandfather mortgaging the farm in 1928 to buy a Model T Ford to impress his family who were coming out from Quebec to show them how successful he had been. What a lesson that was for me in later life.

#71 Ronaldo on 01.08.17 at 10:29 am

#53 No Canada, No on 01.08.17 at 3:03 am

Why stop at paying 2%+ to the banks for their financial services? 1%+ over 20 years is a lot, too.
————————————————————-
The 1%+ is based on total invested each year. If the bank is charging you 2% and they are only returning a gross of 5% its in effect 2/5ths of your gain or 40%.

#72 Ronaldo on 01.08.17 at 10:31 am

#54 Stock Picker on 01.08.17 at 4:13 am

Absolutely.

#73 MF on 01.08.17 at 10:35 am

#1 Euro observer on 01.07.17 at 4:35 pm

Yup correct the valuations are a joke I agree.

Yes 12-15$/hour IS a decent wage for an immigrant who was working a field for 1$/day back home, or was totally unemployed and worried about his next meal.

My observation is that baby boomers are completely delusional about average wages. Very few of my millennial cohort make more than 70k/year. This idea that you work at a company then get promoted and income goes up then retire with a pension is anachronistic. Honestly No one expects that anymore (This is partially why RRSP’s are essentially useless and ignored by the majority).

MF

#74 Ronaldo on 01.08.17 at 10:37 am

The lack of cash refers to investors not putting in new money during selling offs allowing them to take advantage of the lower prices/valuations. – Ryan L
——————————————————————
As one poster stated, mosted people are in debt to the ying yang and don’t have the money to invest. If people invest the grocery money and later find out that they have to cash in to feed the kids, they shouldn’t even be bothering to invest anyway.

#75 Last of the boomers on 01.08.17 at 10:43 am

@#48 smoking mantra is for the calls smoking man but unfortunately many of us do not have enough knowledge to know exactly what to do with the cryptic calls. You may tell us what will most likely happen, but when it comes to bonds, we don’t know what to “bet” with the information.

@#54 stock picker
Thanks for two picks over the holiday season. A few more of your best picks for 2017 to supplement the return on our balanced portfolio, and where to put our “fun money” would be much very welcomed and much appreciated! I did add a marijuana stock in the fun money acct.

#76 Ronaldo on 01.08.17 at 10:45 am

Some tid bits on management fees.

http://www.investopedia.com/terms/m/managementfee.asp

#77 loinytoins on 01.08.17 at 10:50 am

Ryan

What is a good USD preferred ETF to hold during rising rates?

Thx

#78 Ronaldo on 01.08.17 at 11:17 am

”With respect to your second question, yes people can save too much as they forgo living a full life today, saving for their future. So its a balance. Save routinely but not so much that you’re not enjoying life today. Take a vacation, go for diner or to the movies. But make sure you’re putting a little away each month. – Ryan L”
——————————————————————
That is so true. Too many people spend their life accumulating wealth only to sacrifice living a balanced and fulfilling life and end up dead but wealthy. I would rather have lived a full life and died broke. Assuming of course that I’ve outlived my spouse.

#79 Topsy-Turvy on 01.08.17 at 11:29 am

Interesting numbers indeed, but if you were this lucky guy who didn’t try to time the market and invested into benchmark in the year 2000 (around $150 according to the Google Finance), assessing results today ($227) we can see 2.47% compound annual growth rate – where this 8.19% benchmark coming from?

#80 Last of the boomers on 01.08.17 at 11:30 am

http://www.advisor.ca/tax/tax-news/investment-management-fees-whats-deductible-and-what-isnt-2748

Found this article on what portion of fees are tax deductible and what fees are not. Interesting info about registered vs. Nonregistered eligibility.

Thanks Ryan for letting me know that the MER is not included in the 1% fee.

#81 MF on 01.08.17 at 11:36 am

#43 Polls R Phake on 01.07.17 at 11:12 pm

Hey the main news article on the CBC a few days ago stated that a recent poll conducted showed “The Trudeau Liberals are still enjoying overwhelming support”.

Your moniker came to mind.

#62 Eaglebay on 01.08.17 at 10:07 am

Hey at least he won’t embarrass us at the inauguration. Just LOL @ how they aligned themselves with the Clinton campaign during the election so much. Woops. Just like Ace Goodheart (sp?) posted here a few days ago…these Liberals seem completely oblivious so winds of change taking over the western world.

MF

#82 Ryan , good read on 01.08.17 at 11:38 am

Mutual funds historically cannot bet the market, over 85% . And those managers that can may not stay as fund manager for a long tenure. D series funds have made mutual funds more palatable . I see fees dropping further with trailer fees ending in Canada – like the U.K and Australia

With that said , An equal analysis should be made of financial advisors .

As an example . Ryan you charge folks 1.28%. Right off the bat your clients are in the hole . With asset allocation /product picking are you able to Match the index for your clients . Somewhere you have to make up 1.28%. Do you have any historical data to share ? Nothing at your website .

Why aren’t financial advisors held under the same microscope as mutual fund managers ?

#83 Last of the boomers on 01.08.17 at 11:46 am

#69 Ronaldo

Thanks for your grandfathers lesson Ronaldo. Take heed all Millenials.

We’re from the same background but my father did not bet the farm on a car, rather on an income generating business, that provided him well enough.

Sounds like you turned it around for your family Ronaldo. Well done!

#84 Ronaldo on 01.08.17 at 11:52 am

According to this article, retirement for most seems unlikely.

http://www.cbc.ca/news/business/retirement-planning-peter-armstrong-1.3811753

#85 Ponzius Pilatus on 01.08.17 at 12:02 pm

Theoretically, there’s nothing wrong with people wanting accumulate money to provide them with “enough” money.
The problem with money, however, is that there never is enough.
Once you’ve got your first mill, the addiction usually takes over and you’re nothing but a junkie craving for the next fix.

#86 Context on 01.08.17 at 12:12 pm

#33 Ponzius Pilatus: Methinks you protest too much as the essay with graphs is well done by Sir Lew. Perhaps it goes beyond your knowledge of interpretation and that is your problem for a lack of understanding of his detailed presentation. Now as far as his wheels are concerned he earned them, so one day when you make some money you can afford to buy one too.

#87 InvestorsFriend on 01.08.17 at 12:15 pm

So Who Got The Missing $94,811?

For a $500,000 portfolio compounded over 20 years at a 6% gross return, the 1% fee portfolio would grow to $1,324,817 versus the 2% fee portfolio at $1,092,403, resulting in a difference of $232,415 in lost savings! And of this $232,415 in lost savings, $137,604 would go to the fund company or bank charging the 2%.

*****************************************
I checked and the math here is correct.

For bonus points, who can explain where the missing $94,811 went and who got it and why the fund company did not get it.

In examples like this it is usually said that the ENTIRE $232,415 lost by the investor goes to the fund company. Ryan is quite correct that this is not the case. Who can explain where it went?

#88 westcoaster on 01.08.17 at 12:16 pm

For further enlightenment and a reasonably short essay on investment thinking give Stephen Jarislowsky’s “The Investment Zoo” a read. It was written a few decades ago but continues to be virtually 100% applicable today (especially his approach/philosophy of investing). His company JFL has a good, longstanding track record with a total cost of <1% all in if you have 7 figures to pony up.

#89 Leinad on 01.08.17 at 12:29 pm

So Garth when the real estate market crashes..when will you buy back in and stop renting? At a 10-20-30-40% correction?

BTW Trump loves leverage…Infrastructure and Tax cuts this will be like QE4 …higher rates are coming with inflation…USD will go down….. and debt will reduce in real terms…..get ready for blast off

US higher rates will likely mean a stronger US$. — Garth

#90 OttawaMike on 01.08.17 at 12:31 pm

Smoking Man on 01.07.17 at 11:47 pm

Ditto 30 year US treasury.

#91 Old Dog on 01.08.17 at 12:48 pm

So Canada, you elect a part time drama teacher who’s never worked a full time job in his life as your leader.
Tell me, how’s that working out for you?
But don’t worry, “the budget will balance itself.”

#92 InvestorsFriend on 01.08.17 at 1:22 pm

Tax Destructibility of Portfolio Management and ETF fees

Currently, our ETF model portfolio has an average MER (there are nominal MERs with ETFs) of just 28 bps. So a client of Turner Investments pays an all-in cost of 1.28%, which again is partly tax deductible and includes other services such as tax and financial planning, on top of the investment management.

****************************************
Ryan, that is excellent value for money as I suspect most of your clients are not prepared to do it themselves and it would cost them more elsewhere.

On tax deductibility; Is the 0.28% ETF fee not effectively also tax deductible since it lowers the return on which taxes are paid? Whether one uses ETFs, Mutual funds or a portfolio manager one pays taxes on the net returns realised in a taxable account, no?

Or in a portfolio manager situation with 6% gross return does one make 5% after the fee and then report that 5% gain but also deduct the fee as an allowable expense? Seems like that would be deducting the management fee twice but maybe it works that way?

Or maybe the tax advantage has to do with deducting a management fee prior to the return being realized (and taxed) in cash?

I don’t think it is right if one characterises MERs as not being deductible (since they lower the return on which tax is paid ) but perhaps there is some extra advantage to the direct deductibility of the portfolio manager fee.

#93 ccc on 01.08.17 at 1:36 pm

Ryan,
I appreciate much your free posts with lots of carefully presented info. I certainly learn from them. Yet, I feel the story is not complete when one misses the other part of the story. I mean, I get it, with me on your shoulders you can run faster than the fat kid on the block (that heavy-fee Portfolio Manager). However, how would your investing performance compare to a DYI investor that follows investing strategies like those presented by the Canadian Couch Potato et al? I always feel professionals like you miss on presenting a concrete example (or more) that make obvious the advantages of your 1% management fee. Sorry but “tax and financial planning” are just words in your article and over here we value more numbers. I understand you have to keep on enjoying that Porsche of yours Garth brags about (Dec 23 2016 “Spanked” post). Yet, how would you convince ppl like my in-laws for example, with a 2M portfolio, not debts and driving a Corolla to go with your firm (or any other btw) over their DYI strategies? Only trying to point what I consider a weakness the article. Not that you have to convince my in-laws nor that they are looking for an advisor.

#94 mnpr on 01.08.17 at 1:55 pm

Exceptionally good column. Thank-you.

#95 Self Directed on 01.08.17 at 2:09 pm

Does anyone know if ZPR is now over sold after last week’s activity? It’s up 6% in just 3 weeks. Are we seeing Herd effect?

#96 cecilhenry on 01.08.17 at 2:13 pm

Any opinions on this:

Are performance-based fees better for investors?
New disclosure rules have firms experimenting
https://transcend.ca/category/press/

I do think 1% over 20 years really adds up. $200,000 is a lot of money.

Regarding the tax deductbility of the management fee, what does that actually look like in terms of savings?? I’d like to know. Very torn in justifying a 1% fee.

Perhaps it is too high. Depends on the client I guess.

#97 b riding dirty on 01.08.17 at 2:26 pm

1 percent a year to work on my account twice a year sounds like a profitable business. Win or lose the 1 percenters in life always get paid.

#98 Grey Dog on 01.08.17 at 2:41 pm

We all have talents and gifts; however, both my husband and I didn’t get the “financial aptitude” gene. Luckily, we were both savers who were guided by a friend to a financial advisor when my husband was given the golden handshake at age 57.

In our case, these professionals are worth their MERs, an enhanced balanced retirement account is the result, plus the other financial things we depend on them to implement. Yup we were doing one or two major things wrong.

Yes, we continue to examine our accounts monthly. I read this blog daily.

I strongly recommend seeing a financial professional at least 10 years, 5 years, 3, 2, 1year, BEFORE retirement. Get all your ducks in a row!

#99 Metaxa on 01.08.17 at 2:52 pm

Those of you repeating a certain quote throughout this thread are doing yourselves a disservice.

When you promulgate half truths you cast unfavourable light upon everything else you may say.

T2’s full comment was “the commitment needs to be a commitment to grow the economy and the budget will balance itself”

By making it sound like your snip stands by itself you insult my intelligence by exposing yours.

#100 Ryan Lewenza on 01.08.17 at 3:35 pm

Nutty Squirrel “OK now I am told I can write off the 1% a year. How much does one write off – is it $5000 off my taxes. So how much does one save (in dollars) for the tax year?”

From the $5,000 in your example it depends on how much of it comes from the non-registered account and how much from the registered account. You can write off fees from non registered accounts. For example if $2500 was charged to each account (RSP and non registered account) you could write off the $2500 from the non-registered account. $2,500 times your marginal tax rate of say 30% would equate to savings of $700, bringing down the net to $4,300. The higher your marginal tax rate and the more fees charged to a non registered account the higher the savings. – Ryan L

#101 Polls R Phake on 01.08.17 at 3:36 pm

#55 Andrew t on 01.08.17 at 5:25 am
#16 Polls R Phake on 01.07.17 at 6:48 pm
Apparently the Russians hacked global warming so they can make record profits with Gazprom:

https://www.rt.com/business/372932-gazprom-record-high-europe/?utm_source=browser&utm_medium=aplication_chrome&utm_campaign=chrome

Your desperation is quite sad, really.
I might need to start humouring you out of pity.
__________________________________________

hahahahha…..look whose talking LOL. 60% of the planet earth’s landmass is below ZERO and the Global Warmists just wont stop with their phake science quackery.

#102 Ryan Lewenza on 01.08.17 at 3:38 pm

Eaglebay “Ryan, do you mean “credit” your bank account?”

For an automatic savings plan you would debit the bank account and credit the investment account. Basically your just transferring money from your bank account into your investment account. – Ryan L

#103 Polls R Phake on 01.08.17 at 3:38 pm

#90 Old Dog on 01.08.17 at 12:48 pm
So Canada, you elect a part time drama teacher who’s never worked a full time job in his life as your leader.
Tell me, how’s that working out for you?
But don’t worry, “the budget will balance itself.”
____________________________________________

the problem with statements like that is “Canada” did not vote in “mr selfie”. Some Canadians did. It reminds me of when T2 was in Vancouver and he said “Canadians want a carbon tax”. Did I miss a referendum??????

#104 Ryan Lewenza on 01.08.17 at 3:45 pm

loinytoins”Ryan, What is a good USD preferred ETF to hold during rising rates?”

There aren’t many but XPF-T would likely be the best. In the US pref market there are mainly just perpetual prefs. Perpetual prefs pay a fixed dividend in perpetuity. These do very well when interest rates decline, but fall in price when interest rates rise. So must US pref ETFs will hold perpetuals thus underperforming when interest rates rise. However, XPF holds about 50% in Canadian prefs which in turn are about 70% of fixed resets. Fixed resets do well in a rising interest rate environment. So if investing in US prefs focus more on XPF versus the more popular PFF which doesn’t have exposure to fixed resets. – Ryan L

#105 Ryan Lewenza on 01.08.17 at 3:47 pm

Self Directed “Does anyone know if ZPR is now over sold after last week’s activity? It’s up 6% in just 3 weeks. Are we seeing Herd effect?”

I think you mean overbought following the 6% gain and yes it is. We could see a short-term pullback to work off the overbought condition, but this would be a buying opportunity as we see further gains over the next year. – Ryan L

#106 Ryan Lewenza on 01.08.17 at 3:58 pm

Ryan, good read “Ryan you charge folks 1.28%. Right off the bat your clients are in the hole . With asset allocation /product picking are you able to Match the index for your clients . Somewhere you have to make up 1.28%. Do you have any historical data to share?”

Last year our model returned 8.5% before fees. Net of fees most of our clients made between 7-8%. Since each portfolio was built at a different time and since its not a pooled fund like mutual funds, client returns can vary slightly from account to account. Over the last 5 years our model returned 6.5% before fees or 5.5% net of fees. This included a couple stinkers of years with 2015 and 2011 being down years. We are confident that over the long run we can return 6-7% using our balanced approach. – Ryan L

#107 Bezengy on 01.08.17 at 3:59 pm

Bad Investor Behavior? My #1 rule is trust no one, with no exceptions. Open a practice trading account and start trading. Like everything else in life, you actually do get better at stock picking the more you do it. Read “Misbehaving”, watch BNN, stay off the “bull” boards, and keep reading this blog. No money to invest?, better get a second job.

#108 Ryan Lewenza on 01.08.17 at 4:04 pm

ccc “I appreciate much your free posts with lots of carefully presented info. I certainly learn from them. Yet, I feel the story is not complete when one misses the other part of the story. I mean, I get it, with me on your shoulders you can run faster than the fat kid on the block (that heavy-fee Portfolio Manager). However, how would your investing performance compare to a DYI investor that follows investing strategies like those presented by the Canadian Couch Potato et al?”

Yes of course investors can do it themselves using a direct brokerage. Some are very successful doing so and it can result in lower fees then the 1% we charge. However most do it yourself investors are not successful due to the pitfalls I outlined in the article. I worked at a discount brokerage for years and I can tell you confidently that many investors significantly underperform as outlined in my article or, worse yet, blow themselves up. All we’re saying with this piece is that for those who need help with their savings and investments to use an advisor who 1) knows what they are doing, and 2) charge a reasonable fee for their services. – Ryan L

#109 Context on 01.08.17 at 4:17 pm

Looks look at the Life Insurance agent who sells you a whole life policy paying dividends over time and tells you what a great deal you are getting by building up cash surrender values. The agent during the first 3 years has just made a commission of 100% or more from your paying premiums. Thereafter, he earns 2% of your premium for the life of the policy; each company is a little different, but your money finds a way into the agent’s pocket. Nobody works for nothing and a fee of 1% plus a bit becomes a bargain over time for a well managed balanced fund with an investment advisor.

#110 mark on 01.08.17 at 4:19 pm

Ryan,
Great article, was wondering you mentioned the relationship of holding periods vs the tsx and how after 10 years there was no period of a loss.

Would you consider other markets to be in line with that data, for instants would Emerging Markets, Or International EAFE index for example have similar data?

Thanks in advance?

#111 Freedom First on 01.08.17 at 4:36 pm

#60 O’sLC

Yes. Thanks for the support.

#112 Michael Motorcycle on 01.08.17 at 4:54 pm

Since Garth’s book tour long ago, I wanted to let Turner investments be involved with my finances. I thought then and still now though, that I do not have enough to be considered for a client.

What is the average amount that you manage? I can’t do CAD Couch Potato forever.

Generally speaking it makes sense to use a full-service, fee-based advisor when you have roughly $200k or more to be managed. — Garth

#113 Ronaldo on 01.08.17 at 5:21 pm

#54 Stock Picker on 01.08.17 at 4:13 am

If you would like to test your skills at stock picking, Kitco is running a contest (free to join). There are 5 categories and you have a choice of different stocks and you get to pick a couple in each category and a wildcard (any stock on N.Amer. exchanges). I won 2 of 5 and tied in another and 6th in another on the last round. This current contest you can actually win really loot. 1 oz. gold for 1st, 1/2 for second and 10 oz silver for third. Just google “stock pools kitco” and enjoy. It’s excellent practice in doing research as well. the contest runs for another 7 weeks and you compete weekly for the winner of the week. Horizons ETF’s also hold contests now and then and the last one I entered I actually came in the top ten in Canada. I think over 14000 entries if I recall correctly.

#114 Metaxa on 01.08.17 at 5:25 pm

Grey Dog writes: I strongly recommend seeing a financial professional…

Strongly agree. I’ve got lots of way better things to do over sitting at a computer all day tracking stuff to save 1-2%

Last week I was offered a ride in a full prepped rally car…the most fun and the most scairt I’ve been in a long time. Glad Ii wasn’t so busy researching some alphabet etf.

The ladies who look after my funds more than pay for themselves. I spend my time running pork butts through my smoker…

#115 Metaxa on 01.08.17 at 5:46 pm

Generally speaking it makes sense to use a full-service, fee-based advisor when you have roughly $200k or more to be managed. — Garth

I waked into an office with an appointment. Not in a suit and tie. The first words, absolutely first words, out of his mouth was informing me that he had account minimums.

I left.

My team now (she was my first choice anyway due to involvement in community, length of time in industry and type of institution she worked for…) never, ever mentioned account minimums…until I asked.

Notice, Garth did not say they won’t handle accounts under $200,000, rather it makes financial sense for you to start using a pro at that level. My crew also handles my adult children (early 20’s) and they started out well under $100,000 each. Maybe that is a favour to me but I don’t think so.

They now both have fully funded and aggressive TFSA’s that outperform my wife’s and mine…sheesh. Plus a small start on other stuff.

I might have added that a fee-based advisor should “household” your finances, meaning that a husband, wife and adult children (for example) would have an aggregate amount large enough to make the advisor’s services appropriate. — Garth

#116 Cloudy on 01.08.17 at 5:52 pm

How much money does someone need available to be a client?

#117 #32 allegory of the cave on 01.08.17 at 6:49 pm

Nailed it. Right out of the ballpark

Been saying this forever : financial advisors do not consistently provide alpha . A knowledgeable DIY will be better off Nearly 100% of the time

And if he wants another set of eyes – a fee based advisor ONLY

Canada IS waking up to this ….thankfully

#118 maxx on 01.08.17 at 7:41 pm

#98 Metaxa on 01.08.17 at 2:52 pm

“Those of you repeating a certain quote throughout this thread are doing yourselves a disservice.

When you promulgate half truths you cast unfavourable light upon everything else you may say.

T2’s full comment was “the commitment needs to be a commitment to grow the economy and the budget will balance itself”

By making it sound like your snip stands by itself you insult my intelligence by exposing yours.”

“”The commitment needs to be the commitment” to grow the economy and the budget will balance itself.”

No matter how its snipped, sliced or diced, that gem impresses very few because it presents like complete gobbledygook. It remains to be seen what actual degree of “truth” this pronouncement delivers.

Oh, and shame your intelligence is so fragile, we didn’t realize it. We’ll all make a commitment to commit to be more sensitive next time. That should take care of it.

#119 No Canada, No on 01.08.17 at 8:02 pm

I prefer fixed fee, large downpayments, sales and discounts. 1% subscription still too much, imho

#120 What’s 1% worth to you? - MASHDEX on 01.08.17 at 10:58 pm

[…] Read more here:: http://www.greaterfool.ca/2017/01/07/whats-1-worth-to-you/ […]

#121 Shak on 01.09.17 at 12:55 pm

Do you hold the client funds or are they simply advised on what transactions to make within their own respective trading accounts?

That never works. — Garth

#122 Shah, #120 on 01.09.17 at 1:52 pm

What you r inquiring about is flat fee advising . It’s growing in popularity in the US . Not yet in Canada

Financial advisors prefer % of assets under management. For obvious reasons

There are lots of fee-for-service advisors in Canada. They do not manage your money but give you suggestions after you pay $300-$700 an hour. Go ahead. — Garth

#123 Matt Caffrey on 01.09.17 at 6:16 pm

Did Lew mean TFSA instead of TSFA?

#124 tccontrarian on 01.10.17 at 12:56 am

Away from site so no-one will see this post most likely. Be350en busy looking for a new car but too many ‘good’ choices out there.
Anyway, I’m a contrarian investor and far from ‘average’ it would seem. In 2016 I managed to get to triple-digit % gains (with a well diversified mix of ETFs along with individual equities).
My best performer was TCK.b (Teck Resources), at +300%. Add a few oil/gas stocks to the mix, and gold/silver and voila!
It looks like 2017 may be even better (+9% already)…

My advantage? I have a high threshold for suffering (and can buy low, lower, …when the ‘average’ investor panics).

TCC