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People go to the bank with their money and do what the bank tells them to do. Most consumers don't do any kind of product research or comparisons and take the word of salespeople as that of an expert acting in their interest. This is dumb and wrong but old people are trusting and not savvy.
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Mar 30, 2014 07:45
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Kalenn Istarion posted:Rising rates mean declining bond prices. Can someone explain the relationship between interest rates and bonds? Shouldn't bonds be worth more of they return more interest? Also why can interest rates literally not go down? Are they at 0%?
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Mar 30, 2014 10:03
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Mantle posted:Can someone explain the relationship between interest rates and bonds? Shouldn't bonds be worth more of they return more interest? Warning, wall'o'text incoming. There's a couple concepts that you're mixing up here on bonds. Bonds will price in the public markets at a level which provides a buyer of that bond a return comparable to current market rates of return. Thus, you are correct in saying that a bond with a higher interest rate would be worth more than a bond with a lower one, all else being equal (you need to assume the underlying companies have similar risk and industry profiles, among other things). However, both bonds would increase in price if the prevailing rates were to decrease. This is because investors will now pay more for the higher coupon bonds; to the point where their yield to a buyer again approaches prevailing interest rates. I'm on a phone and it's 3am so can't do a numerical example at the moment but I will do one in my AM if someone else hasn't beat me to it. Put a different way, if I told you i knew of someone who could lend you money at 8% and I had an investment that would pay you interest of 10% plus $1,000 5 years from now, how much could you afford to pay before the deal economically didn't make sense? You could afford to pay a price which left you with an 8% return, which net of 8% interest would leave you economically neutral. If I later told you I could now get you money at a 7% interest rate, you could then pay more for the bond, as you would only need to make only 7% on your funds to break even. Again, this ignores differences in credit risk. If you want to see the kind of complication this introduces, read the spoiler. I've hidden it because it clutters the discussion and is t relevant for most. If I told you I had two similar investments, but one company paid 8% with a BBB rating (say 1% risk of default) and the other paid 9% with a BB rating (say 2.5% risk of default), which one would be priced higher? The answer is not a straightforward calculation.. I used to teach this stuff to university students as a finance TA so hopefully that explanation makes some sort of sense. If not, the numbers will help. Re rates, it's not that they can't go down. It's more a call on likelihood and relative risks. Most rates are determined in reference to other rates, and the fundamental reference for the finance system as a whole is the central bank rate. As you know, this is currently about as low as it can go. The other component to rates is the spread, or essentially a risk premium relative to the base rates. Corporate bonds and bank debt for example are often priced behind the scenes as a spread over government of Canada bonds or over LIBOR, for example. The quantitative easing undertaken by central banks has put a 'bid' in the market for certain classes of debt securities, which essentially has had the effect of decreasing this spread. However, you may have heard the term 'tapering' in the news. This refers to the reduction over time of the level of buying support in debt markets, meaning that the spread will likely increase. In addition, if you believe an economic recovery is underway, eventually this will drive inflation up which will require the bank to respond with in increase in the underlying central bank rate. So, the two components driving the majority of interest rates to which bond funds are exposed are BIASED towards increases (no guarantees), leaving me biased towards lower bond exposure in expectation of decreasing bond prices over time. This kind of portfolio allocation is done on a much more sophisticated level in any actively managed investment portfolio. The manager, subject to the rules of the fund he or she is managing, will seek to reduce exposure to sectors or security types they expect to underperformance while increasing exposure to potentially outperforming segments. As mentioned above, generally, trying to time the market is for chumps, and particularly so on single securities, but understanding and anticipating broad, longer term sectoral moves at a macroeconomic level is something that is reasonable for an active self-investor to work into their strategy.
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Mar 30, 2014 11:11
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Kalenn Istarion posted:Put a different way, if I told you i knew of someone who could lend you money at 8% and I had an investment that would pay you interest of 10% plus $1,000 5 years from now, how much could you afford to pay before the deal economically didn't make sense? You could afford to pay a price which left you with an 8% return, which net of 8% interest would leave you economically neutral. If I later told you I could now get you money at a 7% interest rate, you could then pay more for the bond, as you would only need to make only 7% on your funds to break even. How is having the 10% investment relevant in this example? And how do I pay for the 8% investment? It seems like it is not as straightforward as borrowing the money at 8% and buying the 10% investment. What am I paying for in this case?
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Mar 30, 2014 17:07
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If you buy a bond at 8% and a year later interest rates go up to 9% then think about what would happen if you tried to sell your bond. The next buyer could buy your old 8% bond or a new 9% bond so if they were the same price they'd always pick the 9% bond. The market solves this by making your old 8% bond trade for less than face value so that it has an effective 9% interest rate over its remaining duration. It works the other way around, too. If interest rates go down, existing bonds become more valuable. However, keep in mind that the face value of the bond never changes so the market price of the bond only matters if you're trading bonds, not if you're holding them for their full duration.
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Mar 30, 2014 17:48
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Interest rates aren't going anywhere in Canada. The economy is poo poo and has been getting worse over the past decade if you ignore the massaged numbers from the government. No improvement in manufacturing has been seen despite the recovery in the US and our economy is disturbingly not diversified. Once the housing bubble eases off the only source of growth in Canada will be gone as well. I'm tired of people saying not to buy bonds because rates can only go up. They're wrong and they will continue to be wrong because rates can go sideways indefinitely. If you're so focused on returns you've missed the point of bonds allocation in your portfolio anyways so just go hog wild on a full equities allocation.
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Mar 30, 2014 18:31
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acetcx posted:If you buy a bond at 8% and a year later interest rates go up to 9% then think about what would happen if you tried to sell your bond. The next buyer could buy your old 8% bond or a new 9% bond so if they were the same price they'd always pick the 9% bond. The market solves this by making your old 8% bond trade for less than face value so that it has an effective 9% interest rate over its remaining duration. So actually trading bonds has nothing to do with the nominal interest rates at the time, and you are actually making and losing money on change in interest rates relative to each other? So if interest rates don't change, no matter if rates are high or low, there is no movement in the bond market? And basically investing in bonds is guessing on whether interest rates are going to go up or down (simplified model, ignoring credit risk)? Edit: Oh I think I missed something. Does holding the bond actually have intrinsic value as well, i.e. the actual nominal return on the bond? Mantle fucked around with this message at 19:13 on Mar 30, 2014 |
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Mar 30, 2014 19:08
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Way to go hyperbolic. If you had read the thread you would see that's not what I'm advocating. I initially responded to a poster who said he had a 40% bond allocation which, in light of the risks I've outlined over the medium term, felt too high. I personally hold around 20% in bonds. I'm also not saying rates are going up today, but over a reasonable investment horizon, the risks are biased more towards an increase than to a decrease. Ultimately, if you believe otherwise about rates or any other macro factors, then this should inform your investment decisions accordingly.
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Mar 30, 2014 19:10
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Mantle posted:So actually trading bonds has nothing to do with the nominal interest rates at the time, and you are actually making and losing money on change in interest rates relative to each other? So if interest rates don't change, no matter if rates are high or low, there is no movement in the bond market? And basically investing in bonds is guessing on whether interest rates are going to go up or down (simplified model, ignoring credit risk)? You're using some terms incorrectly which are confusing the issue somewhat. Let's start with basic definitions. A bond is a contract by one party to pay another party a series of pre-agreed payments, usually structured as a bond principal amount plus regular coupon (interest) payments. The party buying the bond will pay a price which reflects the time value of money of those payments. To determine the time value, you need to know the timing and amount of those payments as well as the cost of funds, or discount rate. For simplicity's sake, let's consider a 5 year bond with a 10% semi-annual coupon and a $1,000 face value. Current yields (specifically yield to maturity) for similar bonds in the market are 10%. Assuming this bond is traded on Jan 1, 2015, it would have a series of coupon payments on june 30, 2015, dec 31, 2015, 2016, 2017, 2018, and 2019 (June and dec). The principal or face value would also be paid on dec 31, 2019. The value of this bond is the PV of the coupons plus the PV of the face value, at the 10% prevailing interest rate. Sneak preview, this bond will be priced at $1,000, equal robots face value, because the coupon and prevailing rates are the same. Numerically: Price = 50/((1+0.10)^1/2) + 50/((1+0.10)^2/2) + 50/((1+0.10)^3/2) + ... + 50/((1+0.10)^10/2) + 1000/((1+0.10)*10/2) To decompose that mess, 50 is a semi-annual coupon amount ($1000*10%/2), and there are 10 of these coupon payments. The (1+0.10)^x/2 portion is the discount factor. X is the period number (coupon number), giving you exponents of 0.5, 1, 1.5, 2, etc up to 5. 1.1^0.5 will give you a discount factor of 5%, meaning your first payment of 50 on June 30, 2015 is worth about $47.5 today. You can do the math for the rest of the coupons, but the principal payment 5 years out is worth approximately $621 today. Add all that up and you get $1,000. If, for example, rates now increased to 12%, the payments agreed in the bond contract would not change, so it's still a series of payments of 50,50,50,...,1000, but you are now discounting these payments at 12%, meaning they are worth less today. For example, the first coupon would be 50/((1+.12)^1/2) = $47.25 and the principal would be 1000/((1+.12)^10/2) = $567. If you do all the math you will come up with something less than $1,000. Probably around $900, but I'll be hosed if I'm going to do it all on my phone. This is the way in which prevailing interest rates drive bond pricing.
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Mar 30, 2014 20:37
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Yeah someday I might understand bonds but for now 
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Mar 30, 2014 23:09
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tuyop posted:Yeah someday I might understand bonds but for now I struggle with a lot of the finer details, but the core principle is a reasonable one so long as you have a bit of knowledge in time-value-of-money (TVM) calculations: a bond's price is equal to the present value of its [fixed] coupon payments and principal repayment. From that, it follows quite naturally that a particular bond becomes less valuable when interest rates rise - because it alters the TVM calculation, and makes future dollars less valuable than they were pre-rate-rise. As a side point: a course in introductory finance is one of the more valuable things a person might ever spend some time studying, IMO, whether through an actual university or Coursera or what have you. So, so many aspects of modern life derive from it (mortgages, pensions, car payments, car leasing, COLA clauses in union contracts, etc). If you're reading this, and are in university - do seriously consider taking a course. I can just about guarantee you won't regret it.
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Mar 30, 2014 23:21
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Kalenn Istarion posted:Sneak preview, this bond will be priced at $1,000, equal robots face value, because the coupon and prevailing rates are the same. Numerically: I can't believe you typed up two megaposts on a phone. Just to clarify, is the last term in your Price supposed to be 1000/((1+0.10)^(10/2))? I plugged the numbers into Wolfram Alpha and I didn't get $1000 on the button. Why is that? https://www.wolframalpha.com/input/...%2810%2F2%29%29 Anyways, if I bought a bond for $1000 as you described, would I actually be receiving the payments of $50 every 6 months + the principal of $1000 at the end of 5 years? So nominally, I would be receiving $1500 over the 5 years, but the present value on January 1 would be $1000 at 10%? And if rates went up to 12% on January 2 after I had entered into the contract at 10%, the present value of my contract would be $938.42? https://www.wolframalpha.com/input/...%2810%2F2%29%29
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Mar 31, 2014 00:17
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Lexicon posted:I struggle with a lot of the finer details, but the core principle is a reasonable one so long as you have a bit of knowledge in time-value-of-money (TVM) calculations: a bond's price is equal to the present value of its [fixed] coupon payments and principal repayment. From that, it follows quite naturally that a particular bond becomes less valuable when interest rates rise - because it alters the TVM calculation, and makes future dollars less valuable than they were pre-rate-rise. I might take one through Coursera next year. As for bonds, is it enough to just buy bond index funds and puzzle at the variable sums of money that appear in my account every so often and keep that poo poo balanced at 15%, or should I just buy some gold and pray to it for absolution for my lack of financial acumen?  Next you guys will tell me that gold has to pay coupons before its maturity rate ends its interest variable derivative at n//32.1^4*eleventy-three.
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Mar 31, 2014 01:03
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tuyop posted:As for bonds, is it enough to just buy bond index funds and puzzle at the variable sums of money that appear in my account every so often and keep that poo poo balanced at 15%, or should I just buy some gold and pray to it for absolution for my lack of financial acumen? The big issue with bonds is that they are super tax-inefficient in non-registered accounts. The interest payments are the thing that justify the bond's [present] value, but they are taxed. When you pay tax on those, you can potentially lose value on bonds. So keep your bonds in a TFSA and RRSP. Bond funds for the most part abstract away lots of this, but the basic price/yield relationship of course remains, whether a fund or an individual bond. cowofwar dropping in occasionally to tell us we're all idiots notwithstanding, 15% seems a reasonable proportion. Whatever your "bond allocation" might have been pre-GFC, you might consider allocating 1/3 to 1/2 of that to high-interest savings or a GIC ladder instead. At least, that's what I do.
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Mar 31, 2014 01:30
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Lexicon posted:The big issue with bonds is that they are super tax-inefficient in non-registered accounts. The interest payments are the thing that justify the bond's [present] value, but they are taxed. When you pay tax on those, you can potentially lose value on bonds. So keep your bonds in a TFSA and RRSP. Bond funds for the most part abstract away lots of this, but the basic price/yield relationship of course remains, whether a fund or an individual bond. How tax efficient is gold? Does a hole in the forest count as a registered account?
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Mar 31, 2014 01:41
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tuyop posted:How tax efficient is gold? It's not tax-inefficient - the government feels bad about taking more money away from people whose primary investment evaluation criteria is "is it glittery and shiny?". tuyop posted:Does a hole in the forest count as a registered account? That would count as unregistered, since, such holes are presumably not-registered with the government (unlike a TFSA or RRSP).
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Mar 31, 2014 02:06
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This thread has a strong bias against bonds and I'm trying to provide some balance as reality doesn't have the same distaste for them as they function to counterbalance the risk in equities exposure primarily rather than provide returns. Bond allocation is a personal decision based on risk tolerance, expected retirement and allocation. Lexicon, thank you for making this thread but you have strong opinions and poo poo on any post counter to your position as God of Canadian Finance.
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Mar 31, 2014 02:27
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cowofwar posted:This thread has a strong bias against bonds and I'm trying to provide some balance as reality doesn't have the same distaste for them as they function to counterbalance the risk in equities exposure primarily rather than provide returns. Bond allocation is a personal decision based on risk tolerance, expected retirement and allocation. This is a perfectly coherent argument, and it's welcome in fact. One thing that I and others have not been great about acknowledging is that bonds are inversely correlated to equity markets - this is a pretty drat valuable property to have in a portfolio. cowofwar posted:Lexicon, thank you for making this thread but you have strong opinions and poo poo on any post counter to your position as God of Canadian Finance. ... and now you go off the rails. Yes, I have strong opinions. However, they are weakly held - I have conceded and reversed my opinion numerous times throughout this thread, and I do so happily upon good evidence or rhetoric. My credentials on this topic, as I've been clear, are nil - I've simply read a bunch of books and blog posts on this. I'm quite happy to be wrong - in fact I seek it - it's an indication that learning has occurred. Your characterization of my self-actualized title is laughable. The only person I could credibly have been claimed to have 'poo poo upon', and that's a strong way of putting it, is you - you parachute in a poorly-justified (not the same thing as wrong) opinion once in a while and don't stay around for the follow-up discussion.
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Mar 31, 2014 03:00
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cowofwar posted:This thread has a strong bias against bonds and I'm trying to provide some balance as reality doesn't have the same distaste for them as they function to counterbalance the risk in equities exposure primarily rather than provide returns. Bond allocation is a personal decision based on risk tolerance, expected retirement and allocation. Well it's not controversial that bonds are less volatile than equities so you should figure out your risk tolerance and balance bonds and equities accordingly. If that's what you're saying. I don't know what a GIC ladder or any of that stuff is, but I learned (again) that your registered accounts should be prioritized to hold bonds > REITs > equities > gold. Also that there is a lot of math going on.
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Mar 31, 2014 04:22
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tuyop posted:I don't know what a GIC ladder or any of that stuff is melon cat fucked around with this message at 22:06 on Feb 4, 2024 |
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Mar 31, 2014 04:32
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tuyop posted:Well it's not controversial that bonds are less volatile than equities so you should figure out your risk tolerance and balance bonds and equities accordingly. If that's what you're saying. A couple of points: 1) Bonds can be harmful in a non-registered account (because you're paying tax on the interest), thus you always want them in registered. 2) REITs and equities can be held wherever - of course, it's always nice to use tax shelters, so they work well there especially (but see the whole RRSP marginal rate discussion that's been throughly hashed out in this thread). 3) Canadian equities are particularly efficient in non-registered accounts as there is a dividend tax credit. This means that if you have, say, $1000 of registered room, and $2000 to invest - if $1000 of that intended investment was Canadian equity - you might as well hold that one outside the registered and get the dividend tax credit. 4) The TVM bond math all derives from what is a really simple first principle: Say you can get 1.25% return on your money easily (like ING today). That means that if someone borrows $100 for a year from you, they have to give you at least $101.25 back in a years time - because that's what you would have earned anyway by holding onto it. All of finance derives from this principle.
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Mar 31, 2014 04:36
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melon cat posted:GIC "laddering" just means that you're investing in a bunch of GICs with different maturity dates. An example- you invest in a 1-year GIC, a 1.5 Year GIC, a 2 Year GIC, and 2.5 Year GIC. By staggering them out this way, you always have one that's coming up for renewal. So if interest rates change go up, you can reinvest and get the higher interest rates the market's offering. And if interest rates drop, you still have a handful of other GICs that are still locked in at the older, better rates. ING has a nice visual representation of this:  (from http://www.ingdirect.ca/en/save-invest/gic/index.html)
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Mar 31, 2014 04:39
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cowofwar posted:This thread has a strong bias against bonds and I'm trying to provide some balance as reality doesn't have the same distaste for them as they function to counterbalance the risk in equities exposure primarily rather than provide returns. Bond allocation is a personal decision based on risk tolerance, expected retirement and allocation. I don't know who "this thread" is, what's their regdate? I don't think I saw them post anywhere.  One of the joys of personal finance is that there's room for different opinions and personal bias / risk tolerance. I happen to think RRSPs are generally better than Lexicon does vis a vis TFSAs, but we had a page long Personally, I think bonds are a great investment, in the appropriate allocation. If you don't know enough about them to buy directly (just like stocks) there are lots of good bond funds with varying risk and return profiles. I use a Canadian bond fund because I personally don't like USD exposure, but the Canadian corp bond market is relatively lovely and illiquid so you can get better returns and can hedge  out the currency risk if you want to consider US funds.Mantle posted:I can't believe you typed up two megaposts on a phone. Somewhere along the way, I learned how to type on an iPhone about as fast as I can think the words in my head. Maybe I just think slow. Also, I use the Awful ap which makes quoting and such easy. Formatting is hard and you have to do emotes and bbcode tags from memory. I did gently caress up and my phone autocorrected me to 'robots' in the first line you quoted. Frankly I'm surprised you read past that  quote:Just to clarify, is the last term in your Price supposed to be 1000/((1+0.10)^(10/2))? Yes quote:I plugged the numbers into Wolfram Alpha and I didn't get $1000 on the button. Why is that? https://www.wolframalpha.com/input/...%2810%2F2%29%29 Probably rounding, or date reference, or some other stupid little thing I hosed up in my numbers somewhere. quote:Anyways, if I bought a bond for $1000 as you described, would I actually be receiving the payments of $50 every 6 months + the principal of $1000 at the end of 5 years? So nominally, I would be receiving $1500 over the 5 years, but the present value on January 1 would be $1000 at 10%? And if rates went up to 12% on January 2 after I had entered into the contract at 10%, the present value of my contract would be $938.42? https://www.wolframalpha.com/input/...%2810%2F2%29%29 Yes Kalenn Istarion fucked around with this message at 06:44 on Mar 31, 2014 |
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Mar 31, 2014 06:41
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Kalenn Istarion posted:I use a Canadian bond fund because I personally don't like USD exposure Could you elaborate on this? Curious. Personally, if anything, I'm biased the other way.
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Mar 31, 2014 14:47
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cowofwar posted:This thread has a strong bias against bonds and I'm trying to provide some balance as reality doesn't have the same distaste for them as they function to counterbalance the risk in equities exposure primarily rather than provide returns. Bond allocation is a personal decision based on risk tolerance, expected retirement and allocation. I've never sensed an anti-bond sentiment in this thread. I think everyone agrees that they are a reasonable and required part of any portfolio. What that balance is, is up for discussion. I would also suggest to you that bond rates do not live or die by the movement of interest rates alone, especially these days. The entire paradigm of bonds has changed as a result of QE. Even if rates stay where they are long term (which is a position you can have, reasonably), QE is ending, bit by bit, as a matter of fact. Given QE's prime goal is to expand the monetary base and lower yields in a very unconventional way (i.e. print and spend money on bonds), it is worthwhile discussing whether bonds are the same "counterbalance of risk in equities exposure" that they have traditionally been. Bond yields have been artificially manipulated via QE, and now that it is ending, things will be changing in the bond market no matter what the more traditional interest rate control mechanism does. The extent of the impact is debatable, but it is a situation we've never been in before, and hence, there is certainly more risk than there has been in the past with regard to bonds.
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Mar 31, 2014 14:50
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Particularly good Garth Turner post last night: http://www.greaterfool.ca/2014/03/30/risk-on/quote:A fav topic here is risk. Childbirth is risk. Spending seven years at university is risk. Marriage is risk. Driving is risk. Borrowing is risk. Raising kids is risk. Yet people happily embrace such things, thanks to hormones and social pressure. Like kids buying houses, even without savings and virtually 100% debt. Society says that’s a good thing.
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Mar 31, 2014 17:02
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Lexicon posted:Particularly good Garth Turner post last night: http://www.greaterfool.ca/2014/03/30/risk-on/ I knew you were a bit of an acolyte when you mentioned REIT's and preferreds several times. I wrote in to Garth one time to ask some questions and he eviscerated me in one of his blog posts. Good times.
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Mar 31, 2014 17:32
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Saltin posted:I knew you were a bit of an acolyte when you mentioned REIT's and preferreds several times. I wrote in to Garth one time to ask some questions and he eviscerated me in one of his blog posts. Good times. Ha ha. I take issue with a bunch of stuff he says (I mean, Jesus, the guy brings up technical analysis horseshit occasionally) but I think he's worth paying attention to. I've read his blog fairly religiously for quite a few years now, and I think I've gotten a ton of value out of him. It doesn't hurt that he has a way with words that verges on magical. Perchance do you have the post and subsequent evisceration for our amusement?
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Mar 31, 2014 17:37
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The Canadian dollar had a bit of a bounce up this week, and since I think it's short-lived I decided to take the opportunity to put some of my TFSA fund into a U.S. dollar-denominated index. Just figured I'd take this opportunity to remind everyone that no matter what your diversification strategy (e.g. I'm personally avoiding bonds right now), it's almost never a bad idea to have some degree of currency diversification too!
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Mar 31, 2014 18:46
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Saltin posted:I've never sensed an anti-bond sentiment in this thread. I think everyone agrees that they are a reasonable and required part of any portfolio. What that balance is, is up for discussion. Yeah, I made that point above - QE had the effect of artificially narrowing spreads. Lexicon posted:Could you elaborate on this? Curious. Personally, if anything, I'm biased the other way. Nothing specific I can point to, more of a broad consensus opinion developed off a number of different sources. Short version is that over time I expect our economy, and this dollar, to outperform, and I'm too lazy to hedge properly to take the currency risk out. I have also, over time, been burned more by my USD investments than my C$ ones, which gives me an anecdotal excuse to listen to my vague feelings. Specific bits are that I don't really subscribe to the housing doom and gloom in Canada (it's not going to be good, but I don't think it's going to crash the economy), I believe resource prices will be sustained or continue to improve (one of the main C$ drivers) and general economic improvement, while slow-ish, will eventually push rates higher, which will also have a supportive effect on the C$. I am pretty good at the guts of finance but economics is a little more fuzzy wuzzy for me. E: again, it's a matter of degrees. I have US equities, and anyone who has a Canadian index fund has material US dollar exposure (albeit indirectly) via the banks, mining and industrial companies which comprise over half of the Canadian markets. If I was going to add anything else non-C$ at this point I'd probably do euro or Asian exposure right now. Kalenn Istarion fucked around with this message at 00:26 on Apr 1, 2014 |
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Mar 31, 2014 18:55
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Please tell me QE is Queen Elizabeth.
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Mar 31, 2014 19:10
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tuyop posted:Please tell me QE is Queen Elizabeth. Not sure if you're joking, but it's Quantitative Easing just in case. Lexicon posted:Perchance do you have the post and subsequent evisceration for our amusement? Reticent to post it since it exposes a lot of my finances and while he kept me anonymous in the post it's pretty easy to figure out who I am based on this username. It's a few years old now anyhow and while he confirmed what I was feeling in my gut it was a big wakeup call for me. Basically the difference between buying a million dollar home and owing $500k on it forever or living with what I have and being mortgage free in 3 years (now). I feel like I did the right thing every day. Saltin fucked around with this message at 19:30 on Mar 31, 2014 |
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Mar 31, 2014 19:23
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quote isnt edit.
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Mar 31, 2014 19:30
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Saltin posted:Reticent to post it since it exposes a lot of my finances and while he kept me anonymous in the post it's pretty easy to figure out who I am based on this username. It's a few years old now anyhow and while he confirmed what I was feeling in my gut it was a big wakeup call for me. Basically the difference between buying a million dollar home and owing $500k on it forever or living with what I have and being mortgage free in 3 years (now). I feel like I did the right thing every day. Understood. Glad to hear it worked out well for you. I love it when people write in to ask him stuff. He generally gives great advice IMO, and the bollocking he subjects them to is entertaining as hell to read.
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Mar 31, 2014 19:49
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Franks Happy Place posted:The Canadian dollar had a bit of a bounce up this week, and since I think it's short-lived I decided to take the opportunity to put some of my TFSA fund into a U.S. dollar-denominated index. Just figured I'd take this opportunity to remind everyone that no matter what your diversification strategy (e.g. I'm personally avoiding bonds right now), it's almost never a bad idea to have some degree of currency diversification too! Agreed, and as a bonus, the USD-denominated ETFs tend to be very cheap, sometimes drastically so. Vanguard's VTI, which I hold for my USD equity, has a MER of 0.05%.
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Mar 31, 2014 21:24
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Canadian Couch Potato is launching his own line of ETFs.quote:Our goal was to keep the fund’s MER as low as possible, and we have done that. But we’ve added some enhancements here, too. The underlying ETFs have an annual cost of 0.23%, and we’ve augmented this with an additional 117 basis points in management fees, to bring the total to 1.40% for the F-series version, which is available only through fee-only advisors. 
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Apr 1, 2014 15:14
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Garth Turner posted:Diversification. Incredibly, 70% of Canadians who own stocks only have Canadian ones. Others own just three or four individual equities. Or they buy a single mutual fund and put it in their TFSA and RRSP and non-registered account. Fail. It’s a volatile world. You need both balance and diversification. http://www.greaterfool.ca/2014/03/31/real-men-invest/ What's wrong with buying a single mutual fund if the fund itself is diversified? Then I don't have to worry about rebalancing cause the fund does it for me. My investment advisor friend said that he has some clients that have $400k in a single fund Mawer Balanced A which is 60/40 equities/bonds. This sounds reasonable to me for someone who doesn't enjoy being a min/maxer.
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Apr 1, 2014 17:16
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Mantle posted:http://www.greaterfool.ca/2014/03/31/real-men-invest/ Because mutual funds such as that one are unjustifiably expensive, even if they are optimally diversified (which may be in question with many of these things). That fund you mentioned has an MER of 0.96%. Its holder is paying $3,840 each and every year for the privilege of owning that asset. By contrast, identical performance could be achieved at a cost of less than half that with TD e-series, and far cheaper still with a portfolio of ETFs. I can understand tolerating a slightly suboptimal situation in favour of simplicity, but four thousand this year, and the next, and the next... and pretty soon you're talking real money. edit: And 0.96% is pretty cheap in the grand scheme of things. My favourite whipping boys, the Investor's Group jokers, charge upwards of 2% or even 2.5% in some cases. That seriously adds up over a lifetime of investing.
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Apr 1, 2014 17:36
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Lexicon posted:Because mutual funds such as that one are unjustifiably expensive, even if they are optimally diversified (which may be in question with many of these things). How is the MER payable? Is it prorated over the year for partial years?
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Apr 1, 2014 18:05
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Mantle posted:How is the MER payable? Is it prorated over the year for partial years? In general, yes, but this is very much a "read the small print" sort of situation. Some of these funds have an utterly punishing trailing fee if you leave early, etc.
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Apr 1, 2014 18:11
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