Complexities

DOUG By Guest Blogger Doug Rowat

ETFs are wonderful. There’s a reason why we use them in all our client portfolios. However, it’s not like we’ve discovered a well-kept secret: ETFs are now more than a $100 billion industry in Canada, which has been growing almost 20% annually over the past decade. It’s obvious why: ETFs provide more transparency, tax efficiency and, particularly, lower costs than mutual funds.

However, they’re not perfect.

Below are my concerns, which also highlight the pitfalls to avoid when investing with ETFs.

1. Take the market-mastery sales pitches of smart beta and actively managed ETF providers with a grain of salt. Because plain-vanilla ETFs are now so low cost that they’re, for all intents and purposes, free (a 5 basis point fee for an ETF amounts to a cost of only 50 cents per $1,000 invested), ETF providers have issued more and more higher-cost ETFs with an ‘active’ overlay to juice their margins. The Canadian ETF space is now about 1/3 actively managed and this area continues to grow. The average fee for actively managed ETFs is 0.85% vs. passive ETFs at 0.57%—an almost 50% premium. Certainly some of these ETFs have merit, but investors must be aware that a ‘strategy’ is being applied to the ETF and that this strategy will, at times, fail. Also, investors must ask themselves if the active management is necessary. For instance, why pay for a pricey ‘low volatility’ ETF when portfolio volatility can be controlled simply by adjusting bond weightings in the asset allocation.

2. ETFs have become highly specialized. With more than 6,000 exchange trade products listed globally it stands to reason that there will be many that are narrowly focused. On the market currently are ETFs that specialize in robotics, cyber security, livestock and beef futures, Catholic values (no pornography amongst other sinful businesses) and Nashville (yes, as in the home of the Grand Ole Opry). The ETF market is becoming very…what’s the word? Granular. Investors must be honest and ask themselves if they truly understand the highly specific areas that they’re investing in. Keep this in mind as you eagerly await the first medical marijuana ETF (it’s coming; Horizons just filed its prospectus).

3. Timing of new ETF issuance is not always advantageous for investors. ETF providers are in the business of sales. Fair enough, but just as a company typically only launches an IPO when its industry is red hot (read: expensive), so too do ETF providers with their product launches. For example, a new Bitcoin ETF is seeking approval from the Securities and Exchange Commission and may be released shortly. I’m not going to argue the merits of Bitcoin, but it should come as no surprise that Bitcoin relative to the US dollar is challenging its all-time highs (see chart). Also, the potential volatility of many new ETFs is not always clearly disclosed. It might surprise some investors, for instance, to learn that Bitcoin has been roughly 20x more volatile than the S&P 500 over the past five years.

Bitcoin ETF may be released near all-time highs

Deviation: Bitcoin 20x more volatile than S&P 500

Source: Turner Investments, Bloomberg. Standard deviation measures the amount of variation or dispersion for a particular index or security. In other words, it measures the risk of owning that index or security.

________________________________________________________

5. Leveraged and derivative-based ETFs, even now, aren’t fully understood by investors. This is not entirely the fault of the ETF as it is only doing what it was designed to do, but many investors are still unaware of the downside of these derivative-based products even after all the media coverage of ‘daily rolling contracts’ and ‘volatility drag’. For example, we have new clients arrive all the time holding VIX (volatility) ETFs that have sat in their portfolios for years. A VIX ETF is meant to be tactically traded (a virtually impossible task, by the way) not bought and held. The most popular VIX instrument, the iPATH S&P 500 VIX Short-Term Futures (VXX), held over five years has lost 99% of its value! So, ensure that you fully understand how an ETF should be used before buying. Derivative-based/leveraged ETFs also aren’t cheap having an average MER of almost 1.5%—more than double the industry average.

ETFs are wonderful products and have driven costs down across the entire investment industry, but they come with their own baggage and complexities. There are now more than 15 ETF providers in Canada. Fifteen years ago there was essentially one. And mutual fund companies are getting more involved in the space: AGF, Dynamic and Manulife are just a few of the fund companies launching ETFs this year. So, ETFs are only going to get more complex with more providers promising that they’ve built a better mouse trap.

Take care that you don’t get your fingers caught. Or find a financial advisor who’s learned better and safer ways to get the cheese.

Doug Rowat,FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

75 comments ↓

#1 Shawn on 02.25.17 at 1:15 pm

In Vanguard we trust…

#2 Paulo on 02.25.17 at 1:18 pm

Hey Doug Great post as Usual.
This blog is a interesting mix of savy investors, voyers, and
people seeking to learn how to play the game properly.
one issue i see coming up often on this site is, average folks whom are for the most part “financially Illiterate”
seeking advice or guidance. as we both know ETF’s are great investment tools,particularly if structured within a
TFSA. i was wondering if you might consider posting a article that is essentially a how to do this correctly for the financially illiterate lil folks out there?

#3 Euro Observer on 02.25.17 at 1:44 pm

just byu ETFs of:

– global and major stock indexes,
– some country ETFs of major and some emerging/growth economies
– some preferred ETFs
– some sector ETFs – energy, metals/materials

with low fees and forget about it, just reinvest the dividens, rebalancing ocassionally.

#4 Andrei on 02.25.17 at 1:48 pm

2x and 3x – levered ETFs are also a money grave for those that hold them longer than a couple of weeks. They are good for day-trading and algos, but over the long run have a drag that increases with vol.

#5 crowdedelevatorfartz on 02.25.17 at 2:10 pm

Another informative and excellent blog post.
Thank you

#6 mark on 02.25.17 at 2:18 pm

Doug,
Great article.
The industry is set up to confuse people with all the investment choices, its overwhelming with all the choices and funds to choose from and people get intimidated for sure. The next big push will be the so called smart beta funds which are starting to take market share, you cant beat a well diversified equity plain vanilla dirt cheap ETF.
If someone wants simple (but not perfect-nothing is) a well diversified global all World fund is hard to beat with about 5000 different stocks diversified globally for about 20 basis points!

How is that for simple and beats most active funds over long term, for your equity exposure, cheers.

#7 Figmund Sreud on 02.25.17 at 2:43 pm

There are now more than 15 ETF providers in Canada.
_____________________________________

Yes. The hint word here is providers, … pro·vid·ers,

… it’s time to, therefore – just perhaps, investigate investing in publicly traded providers / managers of ETFs?

For a sample, … think, say, BLK [NYSE], … assets under management: U$5.1 trillion (2016). Or BMO [TSX], … with C$34.1 billion(2016) of ETF assets under management!

… just sayin’.

F.S. – Comox, BC.

#8 Figmund Sreud on 02.25.17 at 2:44 pm

There are now more than 15 ETF providers in Canada.
_____________________________________

Yes. The hint word here is providers, … pro·vid·ers,

… it’s time to, therefore – just perhaps, investigate investing in publicly traded providers / managers of ETFs?

For a sample, … think, say, BLK [NYSE], … assets under management: U$5.1 trillion (2016). Or BMO [TSX], … with C$34.1 billion(2016) of ETF assets under management!

… just sayin’.

F.S. – Comox, BC.

#9 Cheap Houses on 02.25.17 at 2:49 pm

Bitcoin is funny because it gets talked down by every money professional in the world, yet had you bought some 4 years ago you would be up 5000%.

#10 David McDonald on 02.25.17 at 2:55 pm

Great Post Doug,
One way to get burned with an ETF is to continue holding it when the managers decide to shut it down. I lost plenty when CHI was closed. I should have asked for advice on that one.

#11 nobody on 02.25.17 at 2:56 pm

And if you had bought the right powerball ticket you would be up 640,000,000% – that’s the difference between investing and gambling

#12 TraderJim on 02.25.17 at 2:57 pm

Another “advantage” of etfs is that they allow small speculators to take a punt at things like the price of oil or currencies, and many even have options that really make for a great casino.

Not sure if the odds are better or worse than Vegas though.

#13 Figmund Sreud on 02.25.17 at 3:18 pm

plain-vanilla ETFs are now so low cost that they’re, for all intents and purposes, free
__________________________

Yes, … but often you will find double dipping being practiced. As example, … when one ETF is holding another ETF. Like, … say, XUS that is basically comprised of one holding: IVV. There is management fee on IVV and there is – on top – management fee on XUS.

F.S. – Comox, BC.

#14 Joseph R. on 02.25.17 at 3:23 pm

Doug,

Nice blog post!

One thing I would comment on is your comparison between the S&P and Bitcoins. You are comparing apple to oranges: the first is an index based on equities and the later is a commodity.

Volatility is expected from commodities.

#15 Doug Rowat on 02.25.17 at 3:36 pm

#6 mark on 02.25.17 at 2:18 pm

Doug,
Great article.
The industry is set up to confuse people with all the investment choices, its overwhelming with all the choices and funds to choose from and people get intimidated for sure. The next big push will be the so called smart beta funds which are starting to take market share, you cant beat a well diversified equity plain vanilla dirt cheap ETF.

How is that for simple and beats most active funds over long term, for your equity exposure, cheers

Correct. 90% of large-cap mutual fund managers underperform their benchmarks. The numbers are similar for Canada. High fees will get you every time.

–Doug

#16 TCContrarian on 02.25.17 at 3:44 pm

Good post. I’ve been ‘burned’ by ETFs as well, basically because I didn’t understand how they worked (commodity based). We now call it ‘tuition’ paid – which is useful in itself.

Now I use primarily pure equity ETFs to garner exposure to a particular sector or global market.

There are so many more choices listed in the US market rather than in TSX. Currently I own or have recently owned (US):
URA, GDX, GDXJ, GXG, TUR, TLT, SEA, SIL, FCG, NGE, EWW, KOL, COPX, XME, GREK, and a couple others.

In TSX, only XGD/ZJG, and ZEO.

Nice to have global exposure and sector exposure without having to bet on a particular management team!
Love my ETFs!!

#17 windjammer on 02.25.17 at 3:44 pm

Question. Do I pay extra tax if I buy US ETF’s and if so is it substantial.
Thanks, your effort is much appreciated.

#18 slick on 02.25.17 at 3:55 pm

Doug, Ryan, or Garth;
This was an interesting article that got me thinking about my sons company investment plan. It is with a large unnamed insurance company that starts with a green M. All money is invested in mutual funds, with the ins. company ‘locking in’ the investments until retirement age. Although, once per year the profitsharing part can be transferred to the RSP part with no fee.
Anyhoo, the question is at 24 years old, shouldn’t the investments be into high equity funds? [ETF’s would be more efficient for him, not the company]. It is gonna cost the poor kid thousands in fees if he stays there.
Me thinks that the employer just threw their hat at the issue to keep it off their plate.
Also, I was stunned at the number of employees that have no clue what is going on with their pensions. Prolly 80% are oblivious.
Thanks

#19 Etf's on 02.25.17 at 4:21 pm

Have gone from terrific cheap vehicles for passive investing to entering the active world as companies quickly adapt and seek greater market share

The jury is out on the active products . They are so young . What’s nice is they have pressured mutual fund companies to lower fees. Those who want a part or all of their portfolio actively managed can get managers with proven historical data for cheaper costs. Rather go that route than these “smart beta” products- some of which have a track record of 1 year or so . No thanks

#20 Doug Rowat on 02.25.17 at 4:32 pm

#18 slick on 02.25.17 at 3:55 pm
Doug, Ryan, or Garth;
This was an interesting article that got me thinking about my sons company investment plan. It is with a large unnamed insurance company that starts with a green M. All money is invested in mutual funds, with the ins. company ‘locking in’ the investments until retirement age.

Anyhoo, the question is at 24 years old, shouldn’t the investments be into high equity funds? [ETF’s would be more efficient for him, not the company]. It is gonna cost the poor kid thousands in fees if he stays there.

Employers typically partner with mutual fund companies to administer their group RRSPs (in this case it appears it’s one and the same). Simply put, you’re usually stuck with investing in mutual funds.

However, regardless of the mutual fund restriction, group RRSPs, in almost all cases, should be taken advantage of because of the generous employer matching.

Occasionally, there will be an option to transfer some or all of the group RRSP elsewhere. This should be taken advantage of as well.

–Doug

#21 Doug on 02.25.17 at 4:34 pm

Correct. 90% of large-cap mutual fund managers underperform their benchmarks. The numbers are similar for Canada. High fees will get you every time.

–Doug

no arguing those numbers. Let’s keep in mind, not all mutual fund managers are the same, just as not all advisors are. Curious is there any data on advisors? do they underperform the market to the extent mf’s do? Let’s be fair now. My guess is that 90% number would ALSO apply to advisory firms. Do you have any evidence otherwise? Advisory firms arent working for free- they add .5-1.5% on top of whichever products they use to build a client’s portfolio

i am grateful to have had $ in Mawer Canadian for the last 11 years;

cost – 1.22%
results (after fees)

10 yr ave- 8.28%
index- 4.69%
beta- .74

thanks for the blog entry

#22 Euro Observer on 02.25.17 at 4:51 pm

Just stick to Vanguard ETFs.

http://www.zerohedge.com/news/2017-02-25/berkshire-letter-highlights-buffett-hates-hedge-funds-likes-immigrants-and-us-outloo

#23 Joseph R. on 02.25.17 at 5:11 pm

Warren Buffett rails against fee-hungry Wall Street managers in his annual letter to investors, especially hedge funds (the guys that use a “2 and 20” fee structure):

“During the financial crisis, Buffett bet a founder of the asset management company Protege Partners LLC $1 million that a Vanguard S&P 500 index fund would outperform several groups of hedge funds over years.

The index fund is up 85.4 percent, Buffett said, while the hedge fund groups are up between 2.9 percent and 62.8 percent.”

Source: http://www.reuters.com/article/us-berkshire-hatha-buffett-indexfunds-idUSKBN1640F1

#24 pete from St. Cesaire on 02.25.17 at 5:16 pm

Devcoin (developed by the Bitcoin folks) will still be standing after Bitcoin’s security problems are revealed. Get yourself some while they’re still dirt cheap.

#25 Andrew Woburn on 02.25.17 at 5:25 pm

Does anyone here have any experience with or knowledge of British investment trusts? These seem to be long established investment pools with low volatility and conservative returns which are designed to preserve capital in rough times. One is managed by members of the Rothschild family (RIT Capital Partners). I haven’t done much research yet but I’m wondering if they could be a useful part of a diversified income portfolio.

#26 Jungle on 02.25.17 at 5:57 pm

We just have VEA and VTI for ETFs, however in the future I would not even convert currency just us CAD listed efts, let them change the currency, norbet’s gambit is overrated and not a cheap/ risk free to perform as people make it sound.

#27 Doug Rowat on 02.25.17 at 6:17 pm

#21 Doug on 02.25.17 at 4:34 pm

Correct. 90% of large-cap mutual fund managers underperform their benchmarks. The numbers are similar for Canada. High fees will get you every time.

–Doug

no arguing those numbers. Let’s keep in mind, not all mutual fund managers are the same, just as not all advisors are. Curious is there any data on advisors?

Is a mutual fund manager going to offer your family tax planning, retirement planning, reproach you when you don’t contribute to your child’s RESP, calm you when markets are volatile, speak to your accountant at tax time, tell you that this is not the right time in your life to buy a sports car, and review your financial situation on an ongoing basis?

Nope. And if you don’t need these services, great. But most Canadians do.

–Doug

#28 Vancouver Review on 02.25.17 at 6:27 pm

Feb 25, 2017 Daily Review video of Vancouver Real Estate Housing Bubble News

https://youtu.be/WBJiWnFW5LA

#29 tkid on 02.25.17 at 6:32 pm

Employers typically partner with mutual fund companies to administer their group RRSPs (in this case it appears it’s one and the same). Simply put, you’re usually stuck with investing in mutual funds.

My employer has a stock purchase program where they match every 2 bucks I buy with a buck of their own up to a max of 3% of my salary. My contributions go into an RRSP, and I’ve set this up to max my RRSP contributions for each year. It’s a brilliant way to contribute to my RRSP without missing the money because it’s deducted from my paycheque. I never miss what never hits my chequing account.

And once a year I transfer it all out into my self-directed RRSP and sell (as per advice I got).

However, regardless of the mutual fund restriction, group RRSPs, in almost all cases, should be taken advantage of because of the generous employer matching.

I don’t get an employer match, but even if there was I wouldn’t contribute to a group RRSP. If the RRSP isn’t solely in my name, and I am limited in what I can invest in, then I’m not interested.

#30 wallflower on 02.25.17 at 6:41 pm

Garth,
The boys are nice but…
your humour rocks!

#31 Buffett's Shareholder Letter on 02.25.17 at 6:44 pm

Here’s Warren Buffett’s latest shareholder letter:

http://www.berkshirehathaway.com/letters/2016ltr.pdf

Here are some of the highlights, if you don’t have time to read the letter:

https://www.forbes.com/sites/antoinegara/2017/02/25/berkshire-hathaway-shareholder-letter-2017/#700632b42dad

#32 Tony on 02.25.17 at 6:51 pm

Re: #12 TraderJim on 02.25.17 at 2:57 pm

Trading currency ETF’s is like placing a show bet on a racehorse that has never finished out of the money in his lifetime. They need at least 10X leveraged currency ETF’s.

#33 I'm NOT Poloz on 02.25.17 at 6:58 pm

@ #Doug Rowatt,

What do you think of the idea of creating a petition for Poloz to cut interest rates on March 01, 2017, lowering our dollar to be more competitive to boost exports?

I believe that the Loonie should be at 50 cents. 76 cents is way too very too overvalued.

Euro is almost at par with the FED dollar, British Pound is at $1.24, Yuan is lower in 2016 than the year before.

We have to devalue the Canadian dollar to be competitive in our global economy.

I personally wrote to Poloz encouraging the Bank of Canada to talk down the Loonie on March 01, 2016 so that the Loonie will tumble from 76 cents to about 70 cents.

We need a 0.50 dollar in the short-run.
We need to boost exports. It’s our only hope.

#34 Last of the boomers on 02.25.17 at 7:05 pm

@27 Doug rowat

Interesting you say these things Doug as I have not received any of this guidance from my financial advisor whom I provide the 1% as well. Maybe it is because I have on .6 of a mil invested? Don’t know why there is no guidance or planning provided. How do we obtain these services? It’s not because I haven’t asked the questions.

#35 Warren Buffett’s Letter on 02.25.17 at 7:11 pm

http://www.wsj.com/livecoverage/warren-buffett-annual-letter-to-berkshire-hathaway-shareholder

http://www.berkshirehathaway.com/letters/letters.html

#36 Deplorable Communications on 02.25.17 at 7:22 pm

#27 Doug Rowat on 02.25.17 at 6:17 pm

#21 Doug on 02.25.17 at 4:34 pm

Correct. 90% of large-cap mutual fund managers underperform their benchmarks. The numbers are similar for Canada. High fees will get you every time.

–Doug

no arguing those numbers. Let’s keep in mind, not all mutual fund managers are the same, just as not all advisors are. Curious is there any data on advisors?

Is a mutual fund manager going to offer your family tax planning, retirement planning, reproach you when you don’t contribute to your child’s RESP, calm you when markets are volatile, speak to your accountant at tax time, tell you that this is not the right time in your life to buy a sports car, and review your financial situation on an ongoing basis?

Nope. And if you don’t need these services, great. But most Canadians do.

–Doug

Yikes, there no wrong time to buy a sports car…. is that what people get for paying you!

#37 westcdn on 02.25.17 at 7:27 pm

I have to speak out against what I think is status quo. Yosemite Sam represents to me as passion vs logic. There are too many on both sides.

Anyway, I think nobody is above criticism. The bible has a statement that brothers should rebut each other. I am an atheist to practiced religions but they serve a purpose. I will answer to a higher power but it is not a person. Trump still has my support because he disrupts the complacent. Yet I wonder.

The last couple of days my maples have suffered. I think most of my gains YTD have disappeared yet I stood and bought/offered Canadian companies for those I thought where punished too much. Is this an Albertan about to eat crow when it comes to RE? At the end of the day, RE values are a joke compared to earnings! What a joke is the Alberta budget. I am getting killed when it comes to taxes.

I was surprised when my daughter told me she kept her family name. All I could say is when things get rough, we get tough. My DNA says don’t fight unless there is something to win. The grandsons were great.

#38 Ponzius Pilatus on 02.25.17 at 7:30 pm

I think most people take all this investing thing far too serious.
Now, the guy running the cafeteria at our local hockey rink is pushing on-line stocks.
5k will get you started. Made 10k last month he says.
Sure.
Whenever I think of investment advisers, the movie Trading Places comes to mind
Particularily, the scene where the two old investment bankers are trying to explain to Eddie Murphy’s character what it is they are doing.
And he responds : Oh, you guys are bookies!
Sooo funny.
Also someone posted a quote by The Lama yesterday.
Worth a reread.
Nothing wrong with making some money, but don’t obsess over it.

#39 Where's The Money Guido? on 02.25.17 at 8:31 pm

From Rafe Mair’s site,
BC’s “alternative facts” budget:
http://rafeonline.com/2017/02/bcs-alternative-facts-budget/#more-3762
Here it says: The so-called balanced budget has only been achieved by delay, spending suppression or hiding contractual liabilities. This is a form of Enron off-balance sheet accounting, that for the first time ever, caused the independent auditor to title their opinion with a new term. BC Hydro did not deliver an annual “audited” report.
Also: If the NDP wins the election this year Moody’s will have the opportunity to hit the BC credit rating down-grade button, thereby making the NDP the goat.

So the Lieberals have never balanced a budget, just lying through their teeth.
Rafe says that Site C will never be completed.

Also, did we ever think that the Kinder Morgan pipeline would never get built with former Enron bigwigs at the helm of KM and filling Lieberal’s pockets.
Huge sell-out of BC and laughing all the way to their off shore banks.
http://www.nationalobserver.com/2016/11/14/analysis/how-scandal-plagued-company-gave-birth-kinder-morgan
https://blog.forthecoast.ca/kinder-morgan-bc-approval-tainted-by-donations-suit-claims-410bd8cd9b03#.s2on3ga0g
It’s all there in black and white.
Vote accordingly or see more of your province given away with benefits to Crusty’s “family”.

#40 free democracy on 02.25.17 at 8:38 pm

#107 free democracy on 02.25.17 at 10:08 am

Why, in a free democracy, would the President not trust people to make up their own minds? — Garth

—-

For the same reason why we see on this blog:

DELETED

It is more complicated than a rhetoric, loaded question.

Comments posted here which are racist, xenophobic, misogynist or vulgar are removed. This, in contrast, is the stuff that defines Trump. — Garth

—-

You know about Trump’s supposed sins, because you were allowed to make up your own mind.

On the other hand, you make decisions that effectively is what you blame Trump for: “do not trust people to make up their own minds”.

We just have to accept that those were what you claim to be – based on your views, because as in Kafka’s Trial, the “crime” is never revealed.

By the way, you worked in the press, you know exactly that press accreditation is not a right and it has always been used as a tool of power by all political parties, politicians.

It is hard to argue that democracy is in danger because a handful of media outlets did not get accreditation to an event, which was attended by others in a usual large numbers.

Not to mention, that the media itself is very selective that who gets “access to the platform”. Just ask Bill Maher.

One characteristic that makes America among the great countries of history is freedom, reflected in a free press. Leaders who seek to contain that, curtail it or diminish it – because they don’t like the ‘fake news’ printed about them – are antithetic, and deserving of even more opposition. Save your words. There is no defence. — Garth

#41 thanks for the reply Doug on 02.25.17 at 8:49 pm

Is a mutual fund manager going to offer your family tax planning, retirement planning, reproach you when you don’t contribute to your child’s RESP, calm you when markets are volatile, speak to your accountant at tax time, tell you that this is not the right time in your life to buy a sports car, and review your financial situation on an ongoing basis?

Nope. And if you don’t need these services, great. But most Canadians do.

–Doug

……

i certainly didn’t mean to insult, and or put you on the defensive. I apologize if it came across that way. In my experience advisors do like to talk about the poor historical data regarding mf’s vs the an appropriate index. I posed questions regarding advisors performance vs the index and you didn’t answer. So i’m assuming that 90% figure for mf’s underperforming would also apply to advisors. Of course, performance vs a corresponding index is NOT the only criteria to assess a portfolio.

certainly agree that advisors provide services that can significantly aid financially illiterate Canadians or even folks that simply are not comfortable managing their own money. Hopefully, they do their due diligence and find an advisor that is a fiduciary

#42 Wrk.dover on 02.25.17 at 8:51 pm

#33 I’m NOT Poloz on 02.25.17 at 6:58 pm
I believe that the Loonie should be at 50 cents. 76 cents is way too very too overvalued.

————————————-

Right you are not Poloz, you are the lunatic that beheaded the kid on the Winnipeg bus. You are twenty five cents crazier than even Poloz.

#43 d'Edmonton on 02.25.17 at 9:07 pm

Occasionally, there will be an option to transfer some or all of the group RRSP elsewhere. This should be taken advantage of as well.

–Doug
———————————————-
Correct in my case.

I can transfer out what I have contributed (plus gains, I presume) at any time subject to a transfer fee

My employer’s contribution stays in the mutual fund until either I leave the company or, I think, until age 65 (If my employer still wants me…)

#44 White House Correspondents' Dinner on 02.25.17 at 9:26 pm

Trump just tweeted that he won’t be attending the White House Correspondents’ Dinner this year; he’ll be the first POTUS to skip the dinner in over 30 years.

http://www.nbcnews.com/politics/donald-trump/trump-will-be-first-potus-not-attend-white-house-correspondents-n725661

I am reminded of some jokes Obama told at last year’s dinner.

“Good evening, everybody. It is an honour to be here at my last—and perhaps the last—White House Correspondents’ Dinner. [Laughter and applause.]

“You all look great. The end of the Republic has never looked better.” [Laughter and applause.]

#45 not 1st on 02.25.17 at 10:00 pm

If investing in ETFs is so great, why will the bank not loan you money to do so? They loan money for everything else.

Of course it will. — Garth

#46 Ret on 02.25.17 at 10:08 pm

Hi Doug,
What are your thoughts on Berkshire A., Caterpillar, GE types of stocks.
Yes, they are a stock, but they appear to be, in each case, a very diversified stock in their holdings, often with some foreign exposure as well. Are they not as diversified as a basket of ETF’s?

Can a purchaser actually buy one share of Berkshire A in Canada? What would the fee be to buy one share and who would sell them?

#47 Smoking Man on 02.25.17 at 10:11 pm

Doug, disappointed with today’s post.

It was to technical, not enough gonzo. Clearly your better writer than Ryan. Well not today. Trick is buddy, you need to share personal experience , inject some human traits.

Your post looks like it was written by a robot.

Now Ryan kills it on camera. We’ve yet to see you in a clip.

Do you studder a bit, is that why?
Great minds want to know.

Bit of advice from the most gifted and un know best writer in the modern world.. have a few wines before you write….

Dr Smoking Man
PhD Herdonomics

#48 Smoking Man on 02.25.17 at 10:23 pm

One characteristic that makes America among the great countries of history is freedom, reflected in a free press. Leaders who seek to contain that, curtail it or diminish it – because they don’t like the ‘fake news’ printed about them – are antithetic, and deserving of even more opposition. Save your words. There is no defence. — Garth
….

If the press was free they would talk about buidling 7. They don’t ..rest my case.

Not free. Shlong Zumanga controls everything. Did you not make it to the second last chapter of my book gartho.

Trump has a rebal nicotine watching his back. Because Zumanga a fellow Nictonite has no heart.
Still pissed no one rescued him from these hidious humans.

I tried to tell him. Sky pilots have no status anymore.

He’s a vengeful idiot.

#49 jay on 02.25.17 at 10:45 pm

https://twitter.com/FailsWork/status/833796631585779715 Trump better teach American truck driver to drive like Chinese truck driver if he want to compete in world.

#50 Smoking Man on 02.25.17 at 10:51 pm

Gartho two Fridays ago. Around 8pm at the forks.
What does it take to make you a beiliver.

https://www.youtube.com/shared?ci=eVD1nF5wqpw

#51 Joseph R. on 02.25.17 at 10:57 pm

#45 not 1st on 02.25.17 at 10:00 pm
If investing in ETFs is so great, why will the bank not loan you money to do so? They loan money for everything else.

——————————————————–

You can always take a RRSP loan and invest it in any ETF you want.

The bank are giving them like candy.

#52 Doug Rowat on 02.25.17 at 11:18 pm

Hi Doug,

What are your thoughts on Berkshire A., Caterpillar, GE types of stocks.
Yes, they are a stock, but they appear to be, in each case, a very diversified stock in their holdings, often with some foreign exposure as well. Are they not as diversified as a basket of ETF’s?

With respect to risk, a blue-chip with diversified businesses is always better than, say, a junior mining stock with a single asset.

However, there are two kinds of investment risk: systematic and unsystematic. Systematic risk refers to market risk. For example, the credit crisis drags down all stocks. Unsystematic risk refers only to company-specific risk. For example, Enron or Nortel. Systematic risk cannot be eliminated through diversification, but unsystematic risk can be. However, if you only own 3-4 stocks, even if they’re blue-chips, you’ll still have unsystematic risk. It takes 50-60 individual stocks to eliminate unsystematic risk–not practical for most investors. For most, ETFs are the best way to remove unsystematic risk.

–Doug

#53 JYCH on 02.25.17 at 11:21 pm

Great piece today, I couldn’t agree more on all the content. I hope everyone understands it :). If you don’t, google it and take freedom in your own hands – it’s doable !!!

Cheers,
JYCH (freedom 2018 @ 43)

#54 Kelownawaiting on 02.25.17 at 11:38 pm

So here’s a “what If”….
What if one has like 80K from an inheritance and you wanna put into some ETF’s that are a great mix that makes sense
And what if …you asked Garth but he says you need like double that much money to justify professional management
So can you pay someone a fee for advice like once a year or are we supposed to trust whatever makes it to the front page of Google or?

#55 free democracy on 02.25.17 at 11:42 pm

One characteristic that makes America among the great countries of history is freedom, reflected in a free press. Leaders who seek to contain that, curtail it or diminish it – because they don’t like the ‘fake news’ printed about them – are antithetic, and deserving of even more opposition. Save your words. There is no defence. — Garth

US free press exist – despite the main stream media.

MSM has turned into a morbid propaganda operation, guided by long list of taboos, created by the political class to turn against each other otherwise OK people, using race, gender, religion or whatever sticks.

We witnessed this not too long ago in the craziness of the “Cultural Revolution” in China and in the former Yugoslavia, where in a matter of months neighbors who used to have a beer together on weekends turned into animals, hating and killing each other for no obvious reason.

The pattern is way too obvious for those who saw it before.

Surprisingly Piers Morgan is wiser by recommending a chill pill than all the rest, who think that increasing the opposition is doing any good.

Historically inexperienced, pampered, naive people have no clue how fast and how far can events spiral out of control, flushing down on the toilet the thin veneer of democracy, humanity, pushing countries back hundred years.

Of course, you think the the great countries of US or Canada are different and immune…

#56 steerage steward on 02.25.17 at 11:54 pm

Long term plans are boring.

#57 steerage steward on 02.26.17 at 12:52 am

Sometimes the things you want are not the things you need

#58 BC_Doc on 02.26.17 at 1:57 am

#1 Shawn on 02.25.17 at 1:15 pm
In Vanguard we trust…

**********************************************

Vanguard for me is like going to church. And listening to Jack Bogle speak? That’s like getting an audience with the Pope. There’s no where else I need to go besides Vanguard.

#59 Euro Observer on 02.26.17 at 3:54 am

#33 I’m NOT Poloz on 02.25.17 at 6:58 pm
@ #Doug Rowatt,

We need a 0.50 dollar in the short-run.
We need to boost exports. It’s our only hope.

———————————
I doubt you are not Poloz, the idiocy you advocate for is rather unique and somehow matches the mental state/ total delusion of the current BOC governor.

Devaluing the CAD will further put pressure on retirees and people on fixed income.

Capital investments go to countries with strong currencies, watch Germany and currently US.

If you want to compete with Asia in cheap labour while living in a very expensive place, god luch with that.

#60 Euro Observer on 02.26.17 at 3:55 am

good luck with that

#61 aa3 on 02.26.17 at 4:21 am

In BC the provincial Liberal party could be caught with envelopes full of cash from vested interests, and I am not sure it would make a difference in the election.

When stories of corruption and conflicts of interest are covered in the media here in BC, the stories generate very little interest among the people.

#62 Stock Picker on 02.26.17 at 8:47 am

What about a portfolio of growth stocks with a increased annual dividend that has no fees of any kind. TD, FTS, etc etc? There’s plenty of that available. Interlisted stocks of companies getting a majority of revenue in USD. Zero fees ever. Cash in your acct every month, quarter , semi annually and annually, hassle free. That way you only own the winners and don’t pay for hundreds of laggards.

For geniuses like you who know corporate performance in advance, it might work. For the rest of humanity, it does not. — Garth

#63 Bytor the Snow Dog on 02.26.17 at 8:48 am

@#55 free democracy-

Exactly. The MSM’s “free press” has been sacrificed on the altar of greed, vested interests, and PCism.

It no longer exists.

Of course it does. Funny to listen to all you experts who have never had a media job. — Garth

#64 windjammer on 02.26.17 at 9:36 am

So I dable and buy tranches of attractive looking ETF’s not realizing I am buying non Canadian products until there is a conversion from Cdn to US dollars. Not a biggy but then I start seeing notices about withholding taxs. I humbly ask a few words explanation around this tax situation. Should I stay away from non Canadian products for this reason?

#65 The Rest of Humanity on 02.26.17 at 9:49 am

#62 Stock Picker

Garth’s response to the above’s arrogant comment:

“For geniuses like you who know corporate performance in advance, it might work. For the rest of humanity, it does not. — Garth”
——————————————————————

Exactly. Thank you for speaking up on my behalf.

The Rest of Humanity

#66 Doug Rowat on 02.26.17 at 10:19 am

#58 BC_Doc on 02.26.17 at 1:57 am

Vanguard for me is like going to church. And listening to Jack Bogle speak? That’s like getting an audience with the Pope. There’s no where else I need to go besides Vanguard.

There’s a reason iShares has been rapidly losing market share–primarily to BMO and Vanguard.

–Doug

#67 Mattl on 02.26.17 at 10:20 am

#34 my guy promised but never did any if those those things either. Thats advisor boiler plate and I suspect very few clients get hands on service like that. I went to a robo this year and couldn’t be happier, fees under 50 bps, good technology and very easy to reach a human when I have questions.

#68 Frank Blood on 02.26.17 at 10:31 am

Re: #33 I’m NOT Poloz. Can you post something different? You’ve posted the same thing here numerous times. We get your opinion. Take it to your MP and Poloz.

#69 Ace Goodheart on 02.26.17 at 12:39 pm

“It takes 50-60 individual stocks to eliminate unsystematic risk–not practical for most investors. For most, ETFs are the best way to remove unsystematic risk.

–Doug”

I would tend to disagree with this statement. If you have, say, $100,000 to invest, what you do is purchase 100 instruments, diversified across the various sectors, based on review of the indexes. Then you have your own index fund. With stocks and preferreds this is easy to do. With bonds it is not possible as you have to purchase a large amount of any individual bond offering, meaning diversification in bonds requires a large amount of capital.

What I have been doing is purchasing stocks directly, in amounts of not more than $1000.00 each, with a 500K portfolio, and then purchasing bonds and preferreds through index funds.

This has been working for me. I usually have a few of my stock holdings “blow up” on me in any given year (last year three of them did, including one REIT). But the loss of the initial investment ($3000.00, $1000.00 per stock) was more than made up for by the gain on the other ones.

The only problem with investing like this is the time it takes to reallocate, which is a constant process. But if you are doing what I do, and trying to avoid “full time work” (I freelance and work as many hours as I feel like working) then the time spent on your portfolio is “quality time” anyway.

And the bond funds and preferred share funds pretty much take care of themselves (especially the bond funds, they are little cash machines. They don’t really change much in terms of market value, but they are like money trees dropping cash into my account every month)

#70 Kelownawaiting on 02.26.17 at 2:50 pm

So here’s a “what If”….
What if one has like 80K from an inheritance and you wanna put into some ETF’s that are a great mix that makes sense
And what if …you asked Garth but he says you need like double that much money to justify professional management
So can you pay someone a fee for advice like once a year or are we supposed to trust whatever makes it to the front page of Google or?

#71 windjammer on 02.26.17 at 3:20 pm

Hey Ace

What do you mean when you say you buy bonds in an index fund?
Do you mean ETF? What are some good ones?

I have been buying some stocks as well as having significant allocation in index etf’s to makeup Garth’s 40%

#72 Ace Goodheart on 02.26.17 at 6:03 pm

Re: #71 windjammer on 02.26.17 at 3:20 pm:

Yes bond ETFs: I have a bunch of them. Here are some of the better ones:

ZAG, CLF, CBH, CLG, HAD, HAB, XIG, XHY, PSB, VSC, XSH, CVD, HYI, XCB, PGL, VAB

What I do is follow my rule where I don’t put more than $1000.00 in any one security. So I end up with a lot of different things. This has the benefit of ensuring that no matter how badly an individual investment does, I can never lose more than $1000.00.

With stocks, it also means I have my fingers in a lot of pies. What I usually find is that most of my holdings will not increase or decrease that much, but I get returns off of them either in capital appreciation or dividends/distributions. A few holdings will increase by a lot (usually stocks) and a few will “blow up” and decrease a lot.

Overall I can produce a return that is pretty good. Last year I did 20% overall which I believe means I hit “Alpha”. That was a good year though. This year I am reallocating the profits into bond funds, which will not increase that much in value, but they are very cheap right now relative to the secure return I can get off of them.

I don’t expect to get anywhere near 20% this year. The stock markets are all overvalued and I am buying bonds. So likely if I can hit 6-8% I will be happy, which should not be too hard to do.

#73 You take the good, you take the bad.... on 02.26.17 at 9:17 pm

Given the extreme volatility in Bitcoin, would it make sense to dollar cost average?

#74 Brett in Calgary on 02.27.17 at 10:46 am

Most of what the CBC publishes is junk IMO, but this article by Mr. Pittis has a few gems in it, my favorite being, the suggestion that the Canadian government may have to adjust how individuals with big TFSAs receive OAS. Classic.

“One change that is almost certainly coming, he says, is the provision that allows people to accumulate huge tax-free savings accounts, but still be eligible for benefits intended for lower-income seniors.

With assets and income sheltered in a tax-free account, some relatively well-off people will be able to get Old Age Security benefits without paying any tax on those benefits and even collect the guaranteed income supplement intended for low-income seniors.

“That, of course, is stupid, silly, short-sighted,” says Kesselman.

“I’m sure the day of reckoning will come when governments do start to somehow factor it in, when more people have TFSAs in the hundreds of thousands and the millions.”

#75 JWD on 02.27.17 at 12:07 pm

#72

Interesting strategy Ace.

Seems like you have something that works for you. How about the transaction costs with so much buying and selling. This has to be significant.