Here is my submissions for the Canadian Tour of Personal Finance Blogs:
There are many posts out there on the high commissions/fees charged by both financial advisors and mutual fund companies. Almost all of these posts slam the high fees charged with no mention of the benefits that financial advisors do offer for some. Personally, I have mixed feelings on the compensation of financial advisors. For knowledgeable amateur investors like you and me their fees do seem ridiculous. Many amateur investors (myself included) shudder at the thought of paying 2% annually to a financial advisor or mutual fund manager. However, I would argue that isn’t the case for the majority of society. We shudder at the 2% fees in the same way a plumber would shudder at paying $80 an hour for someone to replace his faucets. There are many, many people out there who have absolutely no interest in finance or investing and as a result don’t find 2% to be an unreasonable fee to pay for advice on a subject that they know nothing about and have no interest in learning. The mere mention of a P/E ratio or dividend yield is enough to make many peoples eyes instantly glaze over and roll back in their head. If you don’t believe me start talking about the fundamentals of the stocks on your watch list at your next social event or family dinner and see how many people are just sitting there trying their best to be polite and seem interested. As further proof many people I talk to think that an RSP is an actual product. When I’m talking to them I say “that’s great you’ve started an RSP what did you buy?” and in 99% of the cases they respond with a funny look on their face and say “what do you mean what did I buy? I bought an RSP” and most of the time they aren’t interested in hearing that an RSP is basically just a sheltered investing account.
I have friends with zero interest in investing and they think that the fees they pay on their mutual funds and to their advisors are very reasonable as their returns handily beat the savings rate of banks, which is where their money would be if it were not for the advisors. Many of my same friends find it absurd that I’d pay $30 for an oil change or $80 and hour for the services of a plumber. I think the fees argument can be made for almost every profession. If you are in a profession be it amateur or professional you are going to have a hard time paying for something you can do yourself.
Personally, I have the biggest problem with real estate fees... 5% commission to basically just get my house listed on MLS?! that’s $10,000 on an average $200,000 home. Most people that I know who have purchased a house in the last 5 years found it themselves on MLS and then called their agent to simply arrange the viewing. Upon purchase some generic stock forms are filled out at the real estate office and then the lawyers take if from there. Now that was $10,000 well spent...To me that’s absurd!
Disclosure - I’m not a Financial Advisor.
Cheers,
MCM
Showing posts with label pf tour. Show all posts
Showing posts with label pf tour. Show all posts
Monday, May 7, 2007
Friday, May 4, 2007
Canadian Tour of Personal Finance Blogs
I’ll be participating in the second Canadian Tour of Personal Finance Blogs on Monday May 7th. This time around the event has been generously hosted by The Money Diva. If you have a moment you might want to check out her blog as well as the other participants.
For this tour I’ll be ranting about the compensation of Financial Advisors. However, it’s not your usual "fees are too high" rant...it’s a rant with a twist...tune in Monday to find out.
Have a great weekend.
For this tour I’ll be ranting about the compensation of Financial Advisors. However, it’s not your usual "fees are too high" rant...it’s a rant with a twist...tune in Monday to find out.
Have a great weekend.
Wednesday, April 18, 2007
Canadian Tour of Personal Finance Blogs – Reviews
Today I’m just going to review some of the posts that other bloggers have contributed to the tour. I honestly didn't have time to read everyones post so I'm only going to review the posts from blogs in my "Blog I Read" section.
Canadian Dream
He contributed a post entitled “How Much Do You Need to Retire”. His post begins with some sound advice by dispelling the notion that there is a magic percentage of your income that you’ll require in retirement. He then describes the method he would use to calculate how much income is actually required in retirement. He has a pretty extensive list of the costs and revenues that you should use (I won’t list them all here) to generate a rough idea of how much you should have in retirement. Part of the review process of the PF blog tour is to provide some constructive criticism but the only thing that I would suggest is that after the final retirement figure is calculated that it be increased by 10% to ensure that the retirees lifestyle is protected in case of unforeseen events ie- higher than expected inflation, unexpected expensive house repairs like a flood, you end up with 20 grandkids etc… I would just rather have a little too much than a little too little… A great post and I look forward to reading his next post where he’ll go over the numbers for his specific situation.
Investoid
Investoid went over the “save half, spend half” approach that he uses to balance investing for the future versus living for today. He goes over the technique and explains some of the benefits that it has for him and his family such as it “forces us to look at how much value we truly place on an item or experience”. Personally, my wife and I use an allowance system but I have no real criticism here...if it works for you and your family then do it...if not find something that does.
The Money Diva
She discusses how retirement planning can be divided into two stages, accumulation and declining. The Money Diva is quite proficient at the accumulation stage with a networth in excess of $600,000 however, she is admittedly less proficient at planning for the declining stage and has realized that “to retire, you need income. Net worth doesn’t pay the bills every month.” The post provides some food for thought for those contemplating retirement.
Canadian Dream
He contributed a post entitled “How Much Do You Need to Retire”. His post begins with some sound advice by dispelling the notion that there is a magic percentage of your income that you’ll require in retirement. He then describes the method he would use to calculate how much income is actually required in retirement. He has a pretty extensive list of the costs and revenues that you should use (I won’t list them all here) to generate a rough idea of how much you should have in retirement. Part of the review process of the PF blog tour is to provide some constructive criticism but the only thing that I would suggest is that after the final retirement figure is calculated that it be increased by 10% to ensure that the retirees lifestyle is protected in case of unforeseen events ie- higher than expected inflation, unexpected expensive house repairs like a flood, you end up with 20 grandkids etc… I would just rather have a little too much than a little too little… A great post and I look forward to reading his next post where he’ll go over the numbers for his specific situation.
Investoid
Investoid went over the “save half, spend half” approach that he uses to balance investing for the future versus living for today. He goes over the technique and explains some of the benefits that it has for him and his family such as it “forces us to look at how much value we truly place on an item or experience”. Personally, my wife and I use an allowance system but I have no real criticism here...if it works for you and your family then do it...if not find something that does.
The Money Diva
She discusses how retirement planning can be divided into two stages, accumulation and declining. The Money Diva is quite proficient at the accumulation stage with a networth in excess of $600,000 however, she is admittedly less proficient at planning for the declining stage and has realized that “to retire, you need income. Net worth doesn’t pay the bills every month.” The post provides some food for thought for those contemplating retirement.
Tuesday, April 17, 2007
CPI
This is my post for the Canadian Tour of Personal Finance Blogs.
For those of you unfamiliar with CPI (Consumer Price Index) you might want to check out the following link for a definition before reading the remainder of the post.
http://www.bls.gov/cpi/cpifaq.htm
There has been some debate amongst both professional and amateur investors/advisors about the validity and accuracy of CPI (consumer price index). Some people argue it’s too low, while others argue it’s too high. There are many highly educated, respected and experienced economists on both sides of the fence, and quite frankly I’m happy to leave the academic arguing to them. The purpose of this post isn’t to further the argument one way or the other but simply to point out that regardless of which side of the argument you’re on inflation pressures should be a factor in your retirement planning. Inflation is an important consideration by anyone considering retirement, but especially those considering early retirement as they have a longer time horizon to consider. Do you remember what a dollar bought you 20 years ago compared to today? What do you think a dollar is going to buy you in another 20?
Those who argue that the published CPI number is higher than it should be usually base their argument on the fact that the basket of goods used to calculate the CPI either aren’t used by everyone or that the basket does not account for substitutions ie- if bananas go up you buy apples, chicken instead of steak etc...I believe there is some validity to this argue (depending on your consumption habits), but I would not base my retirement on it. Although you might not feel the full percentage effect that CPI indicates I believe that as an investor aspiring for early retirement it would be prudent to use the CPI figures as a minimum guide or benchmark when making predictions of future cash flow requirements. Nobody can predict the inflation rates of the future but for those of us who plan to be retired for 40+ years no amount of substituting or cutting back is going to insulate us from some percentage of real daily inflation in our lives. I don’t think that I’ll feel the full percent effect of CPI but I’m going to use the published CPI figures in my planning as a safety cushion...just in case.
Canadian CPI Figures
American CPI Figures
For those of you unfamiliar with CPI (Consumer Price Index) you might want to check out the following link for a definition before reading the remainder of the post.
http://www.bls.gov/cpi/cpifaq.htm
There has been some debate amongst both professional and amateur investors/advisors about the validity and accuracy of CPI (consumer price index). Some people argue it’s too low, while others argue it’s too high. There are many highly educated, respected and experienced economists on both sides of the fence, and quite frankly I’m happy to leave the academic arguing to them. The purpose of this post isn’t to further the argument one way or the other but simply to point out that regardless of which side of the argument you’re on inflation pressures should be a factor in your retirement planning. Inflation is an important consideration by anyone considering retirement, but especially those considering early retirement as they have a longer time horizon to consider. Do you remember what a dollar bought you 20 years ago compared to today? What do you think a dollar is going to buy you in another 20?
Those who argue that the published CPI number is higher than it should be usually base their argument on the fact that the basket of goods used to calculate the CPI either aren’t used by everyone or that the basket does not account for substitutions ie- if bananas go up you buy apples, chicken instead of steak etc...I believe there is some validity to this argue (depending on your consumption habits), but I would not base my retirement on it. Although you might not feel the full percentage effect that CPI indicates I believe that as an investor aspiring for early retirement it would be prudent to use the CPI figures as a minimum guide or benchmark when making predictions of future cash flow requirements. Nobody can predict the inflation rates of the future but for those of us who plan to be retired for 40+ years no amount of substituting or cutting back is going to insulate us from some percentage of real daily inflation in our lives. I don’t think that I’ll feel the full percent effect of CPI but I’m going to use the published CPI figures in my planning as a safety cushion...just in case.
Canadian CPI Figures
American CPI Figures
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