Archive for December 2017 – Page 2

Interesting Stuff on the Web


Interesting stuff on the web is what I have read through out the week. I read a lot of articles and there is always a few that I feel is worth you reading. Often I have a different opinion than the articles I post on Interesting Stuff On The Web but they are all well written pieces. Here are the links. Enjoy !!


Dangers of expecting too much from the market/John De Goey “What sort of return are you expecting in 2018 and beyond? Most people I talk to who do retirement planning projections use numbers that are markedly higher than what is being recommended.” 

The Best Countries for a Secure Retirement/Investopedia “Looking for a safe haven for retirement? The world’s top five countries for a secure retirement lie in Europe, according to the 2017 Global Retirement Index developed by Natixis Global Asset Management and CoreData Research. In fact, Northern Europe dominates the top 10, with eight entries.”

The Countries with the Most Debt Per Person/Mustard Seed MoneyGovernments like to spend money in areas such as building roads, hospitals, and schools, and even on defense. These media pundits will even point out that heavy national debt is a sign of wealth. You only lend money to those who you are sure will pay you back, right?

The Rude Awakening Of Slumbering Bulls/Lance Roberts Near the end of each year, Barron’s magazine highlights the outlooks for the next year from 10, or so, Wall Street strategists. As noted recently by Sentiment Trader.”

Watch Out, Canada: Half Of Housing Booms End In Crisis/Daniel Tencer “A new study from New Zealand’s central bank has a word of warning for those involved in Canada’s long-booming housing markets: There’s a good chance it will end badly, and people at the lower end of the income ladder will get hit hardest if and when it does.”

Don’t wait for retirement to enjoy life !!


Why Eat Cat Food In Retirement

While I was in a line up at the grocery store checkout this past week, a lady in front of me was buying a dozen cans of cat food. The gentlemen behind her made a joke and said, “No retirement plan?” Everyone found it funny and I was a little jealous I didn’t come up with the joke.

But it got me thinking, why would anybody want to eat cat food in retirement when cans of people food are cheaper? For example, 1 can of 85g cat food is $0.60 whereas a 200g can of salmon is $1.35 ($0.05 cheaper if you go by weight), a 284ml can of soup is $1.05, and a 398ml can of Chef Boyardee pasta is $1.29. All are cheaper by weight.

You get the point. Cat food must taste better?

Mutual fund MER

So what does this have to do with personal finance? Last week’s post Management-Expense-Ratio-MER I wrote about how much MER can affect your portfolio.

There are many ways to skin a cat and a lot of people are still in high cost mutual funds; $1,467,000,000,000 worth in Canada. I did not find the statistics but some of the almost 1.5 trillion would be in group or employer-sponsored plans in which you have little choice but invest in mutual funds (cat food). The vast majority would be through the banks or independent financial advisers.

In 2016, the number of Canadian mutual funds that focused on US stocks that outperformed the index was zero. Investors in these funds are still paying the full MER. Remember, the average management expense ratio in Canada is 2.53%.

On “Interesting Stuff on the Web” I posted an article from Bob Brown Six Themes That Will Drive the Next Five Years where he gave his forecast for equity returns of about 6% over the next 5 years.

One reader of my blog commented “If you take into account the 6% return on stocks after the 2% inflation forecast gives us a real return of 4%. Let’s say the tax man takes 20% then we are down to an after tax real rate of return of 3.2% much of which will come from dividends. If you give up another 2%+ in expense ratio, an investor might as well put their money in long term certificates of deposit and eliminate risk.” I couldn’t say it better myself.

Mutual Funds Fees

It is important to note that all rates of return are published net of fees. For example, if the fund shows a 10% return, it actually earned 12.50% but the MER was removed already. You will never see this fee as it is taken off the fund usually on a monthly basis.

Front end load

This fee comes right off your investment. For example, if you are investing $10,000 and you pay a front-end fee of 2%, you will pay $200 for the purchase and $9800 will get invested. Paying a front-end fee means you have less money at work.

Back end load

A back end load is different in that you do not have to pay anything up front. You still pay the MER usually monthly. However, the mutual fund company has locked you into a 6, 7 or 8 year time frame where, if you leave their company before a certain time, you will have to pay a penalty for leaving early. The longer you stay with the fund company, the smaller the fee. Typically, you can still move your funds around within the same company without triggering fees.

Final Thoughts

Some would argue, that for the 2.5% fee you are getting financial/tax advice from professionals, and that is fine as long as you understand what fees you are paying.

It’s like buying cat food instead of people food in retirement. Active vs passive (what tastes better). As long as you understand the fees you are paying and the services you are receiving for that 2+% MER. If you use the cheaper options out there, you might have a enough left over to buy the really nice organic cat food.

Disclaimer: No cats were harmed in this post!!