Paul's Prose

June 2017

 

What's in a Fee???

                                     (oops.....did I say that word out loud?!)

The business of managing money has evolved over the past 30 years. Yet that old adage “the more things change, the more they stay the same” definitely applies here.

For example, a good portfolio of blue chip stocks back then is pretty much a good portfolio of blue chip stocks today – particularly in Canada’s small market. You can buy a few banks, two utilities, a commodity and then you call it a day. For those crazy people out there, they would buy an international mutual fund like Templeton Fund or Trimark Fund and call themselves diversified.  All of that still holds true, but the vehicles for achieving this mix have been the driving force behind the true changes in the business.

That is, the age of having a high strung guy take or give orders to buy and sell stocks for a commission are drifting away. 

Fee based investing has been around for a very long time and this strategy offers a lot of positives for clients. Why? For one, the fees keep going down, not up! I remember when some of the fees for professionally managed accounts were justified in the 3% to 4% range! Now most investors can achieve a much better managed portfolio for half of that and sometimes even less. Remember, when it comes to the world of high finance, the rich keep getting richer – that is, the larger the portfolio, the lesser the fee.

Another advantage is that fee based portfolios do away with many irrational investor behaviours. For example not doing something because of a commission. From my personal experience it is often those clients that try and save transaction costs that end up with portfolios that are simply not well structured and disciplined.

Roughly 80% of the portfolios we manage are now fee based in some shape or form – remember if you own a mutual fund you are a fee based investor. Just because the fee is hidden doesn’t mean it isn’t there!!! Please do not ever feel uncomfortable talking to me about fees – Our team is proud of what we offer our clients and know that any fees we charge for the services we provide are extremely competitive and would be tough to match anywhere in the country.

 

Outside the Canadian Box

As the world gets smaller it becomes more and more important for investors and their advisors to seek out true diversification internationally. Often individuals perceive this move outside our borders as increasing their risk – that is simply not the case. There are so many good, profitable, stable, socially responsible companies to choose from outside of Canada and the United States and we cannot and should not ignore them if we want to build the best portfolio suited to our needs and looking for better performance.

As I continue to gradually look at diversifying my portfolios outside of North America it is important to understand ones limitations in buying individual companies. Once we start looking at the thousands of companies outside of Canada, any individual advisor needs help – even me ;)

For those of you under our Private Investment Management or A+ platforms, there is no need to make adjustments – we are taking care of this for you. However, please let us know if you would like your personal allocations adjusted. For those of you outside of these platforms, we have been talking to you over the past months but if you are not sure, please give Kristin a call so we can do a more thorough review of your overall geographic asset allocation.

 

Kat’s Corner

During the course of preparing a financial plan for a client, the topic of home ownership will come up. As a society, we are constantly told home ownership is the only way and renting is a waste of money.

Paul is a big fan of the book “The Wealthy Renter” by Alex Avery. In the book, Avery extensively discusses the lesser known cons to home ownership and the simple, more affordable way to live by renting.

Home ownership is forced savings for the owner but at what cost? Along with owning a home comes a lack of liquidity, high brokerage fees, lack of flexibility, a lack of diversity in the investment and investment creep (the tendency to buy a larger house than necessary).

There is also the opportunity cost on the equity. It is very likely that an investor would make more money investing in the markets as opposed to owning a home as home value growth has significantly underperformed the S&P TSX Composite Index.

Everyone’s situation will be different and they will experience different pros and cons to renting versus home ownership. If this is a topic you would like to explore in more depth, please do not hesitate to contact us to set up a time to discuss your personal situation.

 

Personal Thoughts – Lots to Report!

• Brad just got back from 3 weeks in Europe -and is now busy drumming up business – he is running “Stress Free Window Cleaning.
• Leah is well on her way to developing a cure for leukemia – well, she is trying anyway- she loves, loves, loves her summer job at the Ottawa Hospital Research Institute. Of course, she is taking a reach ahead summer course and playing soccer to help keep her the way she likes to be- crazy busy!
• Me, well, my pursuit for my second male athlete of the year trophy is on hold (The first came when I was 11). I was diagnosed with Parsonage Turner Syndrome (aka Brachial Neuritis). For the past three months, I have been sleeping on a chair in the basement due to crazy nerve pain in my neck and shoulder when I lay down. I lost the use of my left arm but now it is gradually coming back. The good news is Rosanna has been sleeping like a baby in our bed!