Investment Adviser

[Enoch Root]

Originally Posted by Slava

Asset allocation is much more of an active decision than what you're alluding to though. How much do you keep in Canada, how much to the US and Global? I think that is a definitive decision and one that changes through the years for some investors depending on the macro trends?

There are many ways to answer that - some of them are active, others focus the decision-making process on other things. Tactical asset allocation is not the only way to manage the asset allocation decision on an ongoing basis.

The point I was making about passive strategies being a one-size fits all approach is specifically regarding the robo-advisors. You take the risk tolerance questionnaire and they allot your funds to a series of indexes. Its absolutely one-size fits all. Granted you pay like 0.25% for that, so maybe that is worthwhile.

Fair enough - my point is that passive =/= one size fits all.

A lot of those things that passive mandates do have been done for decades by active managers. I'm not sure how buying a passive index gives you a better risk adjusted return than the S&P 500, but I'll let you have that one.

I never said that. I said there are ways to improve the risk-adjusted return passively, not that an index will give you a better risk-adjusted return.

Unfortunately buying the whole index has its drawbacks as well. Lets use some complete hindsight here and look at the TSX. In the late '90s if you bought the index you were getting very little exposure to oil because this was not a large component of the index. Move ahead a few years and clearly this was a place you wanted to be invested in. Then when you were buying the index in 2007-2008 you were investing a lot into oil. It was at its peak and made up more of the index. I think we all know what happened next. Was that entirely unforeseen? Could no one have looked in the early 2000s even and suggested the a place to add some weighting was to energy? Would no one look in 2008 and suggest that oil had gained a huge amount and maybe the weight should be reduced? Thats just broad based from an index perspective. Company specific mispricing takes place regularly. You have to look for those opportunities, and its more work than just buying the index, but they clearly exist.

This effectively summarizes some of the drawbacks of indexes vs. more advanced passive strategies. Indexes will always leave you over-weight whatever is currently the most expensive, and under-weight what is currently out of favour (and therefore cheap). On that we agree. But that is not a defense of active strategies. The better solution (IMO) is a passive strategy that addresses that issue.

[HockeyIlliterate]

Originally Posted by Enoch Root

The other issues here are tax optimization, and minimizing tax drag on the portfolio.

Which is, or can be, mostly about where to allocate your investments within your portfolio.

Originally Posted by Enoch Root

There are some advisors who actually do provide value.

I don't doubt that your statement is true. The problem, of course, if finding the ones that do, because (in my view), they are a very distinct minority.

[Enoch Root]

Originally Posted by HockeyIlliterate

Which is, or can be, mostly about where to allocate your investments within your portfolio.

much more to it than that

I don't doubt that your statement is true. The problem, of course, if finding the ones that do, because (in my view), they are a very distinct minority.

on that (and many other things) we agree

[Phanuthier]

FWIW on a limited (1 year) viewing, on a very limited period of coarse (implied), here is the breakdown of how my various accounts do:

Wealthfront - 5.2%%
Fidelity - 5.02%

I am somewhat following both accounts to see how one does against another. I also do manage my own portfolio, and used to have an investment advisor as well (but don't any more since I used all that money to buy a house).

[Enoch Root]

Originally Posted by Phanuthier

FWIW on a limited (1 year) viewing, on a very limited period of coarse (implied), here is the breakdown of how my various accounts do:

Wealthfront - 5.2%%
Fidelity - 5.02%

I am somewhat following both accounts to see how one does against another. I also do manage my own portfolio, and used to have an investment advisor as well (but don't any more since I used all that money to buy a house).

Is that 12 months ending in June?

Without knowing the asset allocation, it is basically meaningless, but 5% sounds really low for the past 12 months

Edit: though if it is 2 different accounts and they are similar, it is most likely due to the asset allocation (assuming they are similar in that regard)

[HockeyIlliterate]

Originally Posted by Enoch Root

much more to it than that

Depends on the jurisdiction in which the investor lives and is taxed.

Certainly, there are issues related to dividends and the like, but, for the vast majority of people (and I'd argue for essentially everyone in the lower tax brackets), what matters most is that they are living below their means and investing for the future and not whether their bond holdings are in a tax-deferred account or if they are availing themselves of preferential dividend treatment.

For those people, I'd much rather see them invest $100 a week into a broad market index fund and get a few things a "little bit" wrong, than spend $250 to talk to a financial advisor and only have $75 a week to get a few things right.

[Enoch Root]

Originally Posted by HockeyIlliterate

Depends on the jurisdiction in which the investor lives and is taxed.

Certainly, there are issues related to dividends and the like, but, for the vast majority of people (and I'd argue for essentially everyone in the lower tax brackets), what matters most is that they are living below their means and investing for the future and not whether their bond holdings are in a tax-deferred account or if they are availing themselves of preferential dividend treatment.

For those people, I'd much rather see them invest $100 a week into a broad market index fund and get a few things a "little bit" wrong, than spend $250 to talk to a financial advisor and only have $75 a week to get a few things right.

False dichotomy.

But to the prior paragraph, yes, the first and most important step is that they are saving for their future and have a plan that they are following.

Having said that, it doesn't take long before a portfolio grows to a size where avoiding mistakes becomes increasingly valuable, relative to the cost of that advice.

[Phanuthier]

Originally Posted by Enoch Root

Is that 12 months ending in June?

Without knowing the asset allocation, it is basically meaningless, but 5% sounds really low for the past 12 months

Edit: though if it is 2 different accounts and they are similar, it is most likely due to the asset allocation (assuming they are similar in that regard)

sorry for Jan 1... year to date

For both, I picked maximum risk...

[VladtheImpaler]

Thanks for the discussion guys. Great reading.