2015 RRSP Thread

[Torture]

Originally Posted by darklord700

$200 a week is 10K a year. Nothing to be sneezed at.

Enough to max out a TFSA when they raise the limits.

[accord1999]

Originally Posted by Sylvanfan

Okay, so today I want to stop putting my voluntary contributions into a RRSP and start moving that money into a TFSA. Being poor, I don't have a large sum of money lying around that's very liquid. So I'll be building it up $200 per week at a time. At $200 a week you really can't open up a online trading account and cost average your way in.

Questrade has commission-free purchase of Canadian or US ETFs:

http://www.questrade.com/trading/services/free_etf

[Sylvanfan]

Originally Posted by darklord700

$200 a week is 10K a year. Nothing to be sneezed at.

Yeah, that would be awesome....I meant to say $200 every 2nd week which lines up with how I get paid.

Really it will be $211.50 every 2 weeks in an attempt to get to the $5500 annual limit. Maybe in a couple years when I get the child care for kid 2 figured out and kid 1 in grade school I can get the wife to put aside her amount.

[Machiavelli]

Originally Posted by heep223

I self-manage as well. I use a combination of ETFs and direct public holdings. I am trained and work in investment management (CFA Charterholder) and am plugged into the industry. That is not to say that I am more in the know than others by any means in terms of investing, just that I understand the inner workings of the industry.

I stay well away from mutual funds, banks and brokers (some if which are good, most of which are sub-par, some of which are terrible).

Not sure if that answers your questions or not but would love to see more investment-related questions and discussion in these types of threads.

Are index funds more similar to mutual funds or ETFs? What are your thoughts on index funds?

[Slava]

Originally Posted by Machiavelli

Are index funds more similar to mutual funds or ETFs? What are your thoughts on index funds, and how do you choose ETFs?

An index fund is where you buy an entire index, say the S&P 500. So when you watch the news and they get to the business section if they say the market was up today you made a little money, and if the markets were down you lost a little bit. You own it all.

Mutual funds are a collection of securities (stocks and bonds) and are managed by a fund manager. The manager decides what to buy and sell and when. These don't necessarily move the with markets depending on what they're holding and the decisions made by the manager.

An ETF is an exchange traded fund. So basically this is a vehicle that holds a collection of securities (maybe an index), that trades on an exchange. An index fund might be an ETF, but doesn't have to be. An ETF might be an index fund, but there are many, many varieties and thousands of options here.

[heep223]

Originally Posted by Machiavelli

Are index funds more similar to mutual funds or ETFs? What are your thoughts on index funds?

As Slava points out, an index fund is simply a strategy that is tracking an index such as the S&P/Tsx composite. This is typically associated with ETFs which are more passive by nature (not all though), but could be in a mutual fund structure. I tend to use the terms ETF and indexing strategy / passive strategy interchangeably.

Indexes are rules-based, so there is no portfolio manager making decisions on what to buy and sell. Hence why they are cheaper. Most of the research shows that most active portfolio managers can't outperform the index anyways, so you're paying more for worse performance. Though this is a generalization.

[DoubleK]

Originally Posted by heep223

As Slava points out, an index fund is simply a strategy that is tracking an index such as the S&P/Tsx composite.

True

Originally Posted by heep223

This is typically associated with ETFs which are more passive by nature (not all though), but could be in a mutual fund structure.

Not True

Originally Posted by heep223

Indexes are rules-based, so there is no portfolio manager making decisions on what to buy and sell. Hence why they are cheaper. Most of the research shows that most active portfolio managers can't outperform the index anyways, so you're paying more for worse performance. Though this is a generalization.

Somewhat true, though this is a generalization.

[Slava]

^ which part is not true in your point there? You can buy indexes in mutual fund structure and depending on why you do this there are advantages to doing so. Maybe that's not the point you're talking about though, I'm not sure.

[heep223]

Boo. They're pushing this decision out. The fact that there isn't a fiduciary standard for advisers is just simply shocking to me. At least guys in the CFA program have to abide by the ethics and standards of the institute....because they're much more stringent than what our "regulator" asks for.

One of the main objectives of the review is to find out whether trailer fees generate potential conflicts of interest, encouraging financial advisers to recommend mutual funds that pay the adviser the highest trailer fee but that might not necessarily be in the best interest of the client. Industry observers believe the regulator could introduce a fiduciary duty standard for advisers, and/or an outright ban on trailers, which is the chief source of income for advisers in this country.

http://www.theglobeandmail.com/repor...ticle23279736/

I feel like I might be highjacking this thread. Apologies, carry on. I wonder if there's another more general investment industry thread I should be taking my rants to!

[Slava]

NM, I read it elsewhere. While we're way off-topic I will just say that trailers are huge for the industry as a whole and their elimination will be an absolute watershed moment for the industry in Canada. It will take the advisory practices today and make them much more transactional in nature and push people to the banks for accounts as well, which is not good IMO.

I do agree about a fiduciary standard and I'm a CFA candidate personally, so I know what you mean about the ethics and code being more robust. I actually think that the industry as a whole has been pathetically 'managed' if that's the right word for it. Anyway, I'm very interested in what is coming down the pipe here. Just groundbreaking changes ahead for this business.

[CaptainYooh]

Originally Posted by Slava

... the industry as a whole has been pathetically 'managed' if that's the right word for it. ...

Pathetically managed, undeservingly compensated, unaccountable and, most of all, without any proven knowledge of how to make clients' portfolios grow consistently. Which was a major reason for me switching to self-managing all of my own portfolio.

I've had some money invested for 15 years in three diversified funds with Philips Hager & North, arguably one of the best managed mutual fund companies in Canada. In 2008, the annualized return of my portfolio with them was just over 1%. My own self-directed portfolio was several times better over the same period. This was a big moment for me, when I realized that they don't really know much more than an average interested and disciplined investor.

[Slava]

Originally Posted by CaptainYooh

Pathetically managed, undeservingly compensated, unaccountable and, most of all, without any proven knowledge of how to make clients' portfolios grow consistently. Which was a major reason for me switching to self-managing all of my own portfolio.

I've had some money invested for 15 years in three diversified funds with Philips Hager & North, arguably one of the best managed mutual fund companies in Canada. In 2008, the annualized return of my portfolio with them was just over 1%. My own self-directed portfolio was several times better over the same period. This was a big moment for me, when I realized that they don't really know much more than an average interested and disciplined investor.

Yeah that isn't at all what I mean. The issue for people in general who use advisors isn't purely about whether they got better returns. Surely that is a piece of it, but advisors provide all kinds of information and advice. I spend hours explaining concepts and helping people plan estates, retirement, debt, taxes and how to structure things.

The PH&N example is meaningless without knowing what you were invested in and why. I have clients that made money through the worst of 2008 and called me up worried that it was a ponzi scheme; that kind of anecdotal "evidence" doesn't mean that everyone should use me, or any advisor though. Its one persons experience.

I also take direct issue with the idea that we're "...undeservingly compensated, unaccountable and, most of all, without any proven knowledge of how to make clients' portfolios grow consistently." That's just pure garbage. What do you consider undeservingly compensated (not that undeservingly is a word to begin with)? In whose opinion? I'm hardly unaccountable to my clients, and frankly there are hundreds of options for dissatisfied clients to consider in terms of other advisors or doing it themselves. I'm not even going to get started on the point about getting better investment returns with you, because I think differently than you. I'm the kind of guy who values advice and pays professionals because I think they are more experienced and do a better job than I could. I pay for a barber, when the fact is I know how to use scissors. I pay for an oil change when I could do that myself, and pay for accountants and realtors when the time comes to sell my home. I could draft a will using a kit on my own, but I would pay a lawyer. You just have a different view of things, and that's OK. You don't have to deride my profession on your way to making that choice though.

[Johnny199r]

Originally Posted by CaptainYooh

Pathetically managed, undeservingly compensated, unaccountable and, most of all, without any proven knowledge of how to make clients' portfolios grow consistently. Which was a major reason for me switching to self-managing all of my own portfolio.

I've had some money invested for 15 years in three diversified funds with Philips Hager & North, arguably one of the best managed mutual fund companies in Canada. In 2008, the annualized return of my portfolio with them was just over 1%. My own self-directed portfolio was several times better over the same period. This was a big moment for me, when I realized that they don't really know much more than an average interested and disciplined investor.

Invest directly with Mawer. Look how you'd be doing with Mawer balanced fund for those 15 years, or any other of their funds for that matter.

Don't paint all companies with the same brush.

[CaptainYooh]

Originally Posted by Slava

...You don't have to deride my profession on your way to making that choice though.

Slava, I was speaking only about my own experience with the investment advice industry; but I do see how it came out as an overall generalization. This was not my intent. I completely understand and accept that there are many good, honest and well-educated people working in this industry.

When I mentioned "undeservingly compensated", I meant compensation based on the value of assets under management, which is prevalent in the industry. This means a fee is charged regardless of the portfolio performance. I consider this method of compensation undeserved (and yes, I knew that "undeservingly" is not a proper word, I just couldn't find a better one).

The PH&N example was very meaningful (to me). I've invested a certain amount in in three funds and let it sit there for 15 years. As passive as you can get it. Just let the professionals do their job. And they didn't do a very good job. That was my experience.

Regarding knowledge: I am familiar with basic stock analysis and I understand the risk assessment at a decent technical level. I've visited quant rooms at some major trading outfits and saw the level of their analysis too to realize that my level is substantially lower. Yet, I do not believe these outfits had any better knowledge of any stock prognosis than you or me. They only had the better tools to trade more efficiently. I've had some investments that performed spectacularly well and I've lost all of my money on some others. I've had an adviser from a very reputable Calgary firm telling me and his other clients to buy Bre-X when it was going down hard at $4/share, because they felt it was going to recover...

Anyway, my initial post was only a curiosity about how others are investing in their RRSPs.

[heep223]

Originally Posted by CaptainYooh

The PH&N example was very meaningful (to me). I've invested a certain amount in in three funds and let it sit there for 15 years. As passive as you can get it. Just let the professionals do their job. And they didn't do a very good job. That was my experience.

Originally Posted by Slava

The PH&N example is meaningless without knowing what you were invested in and why.

Slava is bang on. PHN is the best bond manager in Canada and consistently outperforms passive bond strategies. You're saying your annualized return was 1%....what was the market (ie. their benchmark) over this time? What if the market was down 10% over that time period? Do you consider this? What funds and asset classes were you in? Why were you invested and what was the allocation in the context of your larger portfolio? What did you overall return to this asset class look like? Yeah you're taking a way too simplified approach here by saying "oh yeah they returned 1%, they're a bad manager, therefore I can do it better". This is the issue with self-management sometimes, the investor may lack a basic framework knowledge of portfolio management and construction, risk and return, asset class profiles. I'd also add that "as passive as you can get it" is not at all accurate, PHN is an active manager and an excellent one at that (in fixed income).

Originally Posted by CaptainYooh

When I mentioned "undeservingly compensated", I meant compensation based on the value of assets under management, which is prevalent in the industry. This means a fee is charged regardless of the portfolio performance. I consider this method of compensation undeserved (and yes, I knew that "undeservingly" is not a proper word, I just couldn't find a better one).

Again, this is way too simplistic. You're completely overlooking behavioural finance and incentives. Would you rather your manager only get paid if he returns you 10%? That would encourage your manager to take a ton of risk if he knows he's only going to get paid in that case. If he doesn't earn the 10%, he doesn't get paid and he'll stop putting effort into your account. And as Slava points out, removing AUM fees would also result in more transaction/commission based fees which are an even bigger issue. Actually AUM fees are the most effective in terms of the classic agency issue, institutional investors are moving towards this model with traditional transaction-based brokers as well. Honestly the best model for the average retail investor, if they're going to pay for advisory services as opposed to doing it themselves, is a retainer fee or an AUM fee.

My issue is with hidden trailer fees buried in mutual funds. Retail investors are simply paying too much and advisers are incentivized to sell product that isn't necessarily in the best interest of their client.