Here is the second part of my interview with Margot Bai, author of Spend Smarter, Save Bigger. If you haven’t read it already, the first part is available here and don’t forget to enter in the book giveaway (details at the end of this post).
Your book is packed with excellent advice on saving money. If there is only one piece of financial advice you could give, what would it be?
Margot Bai: Take responsibility for your financial future by educating yourself about money. Do not rely solely on the advice of a financial advisor: no advisor can or will take responsibility for making your dreams come true. It is your life and no one cares more about how it turns out than you do.
Financial services, like anything else, are a buyer-beware situation. You must learn about the options and risks and understand all the implications when you sign contracts for things like mortgages, insurance and investments. Take time to research low-cost alternatives to traditional financial services – no commission-based advisor will tell you about them. When you understand all the alternatives, you can accept some risk and responsibility in exchange for significant savings.
I was especially impressed with your advice on investing. Given that you also practice what you preach, how did you arrive at the conclusion that low-cost investing is very important?
Margot Bai: The topic of mutual fund fees is a controversial one. People who earn their living from these fees uniformly discount their importance. Conversely, independent sources are quite scathing about the negative impact of higher fees on returns.
The MER (management expense ratio) is charged regardless of whether the fund goes up or down in value. This is a great arrangement for mutual fund companies and salespeople, and not so great for consumers. Since there is no relationship between fund performance and fees, there is no incentive for fund managers to ensure their funds out-perform or for advisors to ensure they choose top performing funds for you.
Anyone can look at past performance and point out funds with high fees that have done well. But no one can guarantee which mutual funds will be star performers next year. The one thing we do know however, is that, on average, funds with lower fees out-perform funds with higher fees because of the effect of fees on returns. When you look at compound growth charts, a difference of just 1% or 2% in returns can translate into hundreds of thousands of dollars over a 30 year investment time horizon.
The logical conclusion is that investing in low-fee funds gives us the best chance for top returns. The savings are significant and well worth the extra effort involved in choosing a low-fee mutual fund company and taking responsibility for our own financial future.
Book Giveaway: Here’s your chance to find out if you think Margot Bai’s book is as good as I thought it was. I am giving away one copy of Spend Smarter, Save Bigger to one lucky reader. Entering the contest is very simple: just leave a comment with your email address (Privacy Policy) before 8 p.m. EST on Wednesday, February 7, 2007 and I will pick one entry at random. Open to Canadian residents only and only one entry per person. Good luck!
Bookmark: del.icio.us Digg StumbleUpon
96 responses so far ↓
1 Just Call Me "Captain" // Feb 6, 2007 at 2:26 am
As a recent lurker to this site and now first time poster, I want to thank CC for his efforts to “get the word out” to average Canadians like myself.
2 Beeb // Feb 6, 2007 at 4:51 am
Refreshing to see a personal finance book that doesn’t go after the little things like muffins or lattes, which I always found somewhat gimmicky, but after big purchases. Sounds like a good read.
3 Giovanni // Feb 6, 2007 at 7:12 am
Great work, I have been an avid reader of your posts for some time and respect your opinions on your book reviews. I use your list as list of to read books.
Hopefully this book will be won and not purchased,who knows.
Keep up the good work
4 Canadian Dream // Feb 6, 2007 at 8:40 am
CC,
Thanks for the great interview posts.
Keep up the good work,
CD
5 sean antle // Feb 6, 2007 at 8:42 am
Love your site and would enjoy reading Margot Bai’s book… so please pick me
Thanks,
Sean
6 John // Feb 6, 2007 at 8:42 am
About the MER..if the fund loses money, doesn’t the mutual fund company make less from the diminished asset ?
Now that I have discovered your site, I’ll stop by regularly
7 George // Feb 6, 2007 at 8:58 am
John: Technically yes, but I don’t think that factors into the fund manager’s mind too much, since the “asset” varies in value all of the time with purchases and redemptions, which likely have a larger effect than swings in the market (at least, for most funds).
If the MER is 2%, then each year 2% of the assets in the fund are being used for management fees - every single year. From the perspective of the individual investor, that means that their returns would be 1% higher each year if they invested in a similar fund with a 1% MER.
The thing that amazes me is that MERs are rarely adjusted for economies of scale. If a fund goes from having one billion in assets to ten billion, the costs of operating that fund don’t grow tenfold, so the extra MER money goes into profit for the fund company, instead of a reduction in the MER.
8 Tyler // Feb 6, 2007 at 9:18 am
Sounds good. I can’t wait to read it!
9 GettingRichTogether.blogspot.com // Feb 6, 2007 at 9:55 am
Love the site. The first thing I check in the morning.
10 Matt // Feb 6, 2007 at 10:13 am
Great Interview… Keep up the good work!
M
11 0xcc // Feb 6, 2007 at 10:19 am
Pick me! Pick me!
12 Canadian Money Blogs Reviewer // Feb 6, 2007 at 10:19 am
I like any author who warns people against mutual fund excessive fees
13 Steve Heath // Feb 6, 2007 at 10:20 am
George… not to defend mutual funds or anything, but if the volume of business increases 10fold then I could see costs increasing, maybe not 10fold, but significantly, especially if the money dribbles in rather than coming in one lump sum, as there would be a lot more stock transactions that would need to take place.
That said, I’m an ETF all the way.
Steve.
14 Lee // Feb 6, 2007 at 10:29 am
Nice to see a book that takes the next step after removing the small unnecessary spending.
15 James // Feb 6, 2007 at 10:35 am
This sounds like a great book. The idea of high MER’s bother me to no end. There are so many much better and lower cost alternatives to high MER funds. I also am thankful somebody has pointed out that the possibility of big savings on major purchases is more important than the minor savings from that daily latte. As with all else though it is balance. Big savings and small savings are both of great importance in the big scheme.
James
16 MT // Feb 6, 2007 at 10:39 am
CC,
Your site is one of the first sites I read each morning. I find the book reviews to be extremely informative. Interviewing the author is a great additional source of information and insight.
17 Kanwal // Feb 6, 2007 at 10:42 am
Great interview!
Keep up the good work.
18 Craig // Feb 6, 2007 at 10:44 am
please consider me entered!
Cheers.
19 Chris H // Feb 6, 2007 at 10:45 am
Come on lucky socks!!!!
20 Jon D. // Feb 6, 2007 at 10:58 am
The things I *love* (sarcasm) about MERs is:
a.) that 1-3% haircut on assets is hidden in the return. I think there would be more controversy if managers said they did 10% last year, but you get 7.5%
b.) Americans have on average lower MERs, probably due to more investors and healthy competition.
c.) The upstart retail investor has little choice to alternatives. Brokerage accounts still charge $25-30 / trade, and say you buy your ETF or Stock once every 1-2 months you’d have to invest over $1000 per instance to reduce fees. Also, most brokerages charge an annual fee for self-directed RSP accounts under a certain value.
Talk about barriers! No wonder people don’t like investing in their RSP, and CIBC World markets tries to make it the consumers’ fault:
http://www.newswire.ca/en/releases/archive/February2007/06/c4906.html
21 Bryn M // Feb 6, 2007 at 10:58 am
I’ve loved reading your blog, and as a recent graduate, all the advice I’ve read has been put to good use. Keep up the great work!
22 AL // Feb 6, 2007 at 11:18 am
Good interview. Margot Bai’s looks like a worthwhile read. Keep up the good work.
23 Brock // Feb 6, 2007 at 11:25 am
Looks like a worthwhile read.
Thanks for another great review!
24 Joel // Feb 6, 2007 at 11:26 am
Enjoy the site… and will enjoy the book with you pick me
25 Duncan // Feb 6, 2007 at 12:06 pm
I’m in! Would love to read this book!
26 John // Feb 6, 2007 at 12:16 pm
Enjoy the site, would love to get my hands on a copy of that book!
27 Josc // Feb 6, 2007 at 12:24 pm
Keep up the good work.
28 Ryan // Feb 6, 2007 at 12:25 pm
Looking forward to reading this book whether I win or not. As I have just recently moved all my RRSP’s and my kids RESP’s to low fee index funds I am very interested in this subject.
Keep up the great posts!
29 lainy // Feb 6, 2007 at 12:58 pm
Count me in too !
30 Christian // Feb 6, 2007 at 1:02 pm
Great blog. Keep up the good work !
31 Dan // Feb 6, 2007 at 1:20 pm
Great work CC.
32 Mark // Feb 6, 2007 at 1:27 pm
Coffee and a muffin are bright spots in many people’s day, and are well worth the few dollars that it costs. I’m glad this book doesn’t take a penny pincher approach.
33 Carlos Betancourt // Feb 6, 2007 at 1:39 pm
Excellent Review, keep going with your good posts
34 Alastair // Feb 6, 2007 at 1:41 pm
Sounds like an interesting book.
35 Middle Class Millionaire // Feb 6, 2007 at 1:49 pm
I haven’t read the book yet but it sounds great!
P.S - Keep up the great work on the blog
MCM
http://middleclassmillionaire.blogspot.com/
36 abe // Feb 6, 2007 at 2:41 pm
I want this book.
37 JP // Feb 6, 2007 at 2:47 pm
Great interview. Would love to read the book!
38 Lise // Feb 6, 2007 at 2:53 pm
While I agree on much of what Ms. Bai says, the fact is that most people don’t actually really understand what they’re investing in, and don’t seem to care all that much. Only recently I had someone tell me she opened an RRSP 7 years ago “because my dad said it was a good thing” but she had no idea what an RRSP and what was in her RRSP. I’ve also often heard people brag about how they had no idea what was in their RRSP… someone else made those decisions. I will never understand it… we work hard for our money, how can we not care about what happens to it?
39 Janice // Feb 6, 2007 at 3:03 pm
I’d be interested in reading this book. I agree with the comments about mutual fund fees.
40 Steve D // Feb 6, 2007 at 3:15 pm
Hey,
Great site, full of discussion topics for sitting in traffic with the wife.
Cheers,
Steve.
41 JackeyW // Feb 6, 2007 at 3:40 pm
Hey CC … love ur blog and very resourceful especially to me whom is a personal finance rookie
Keep up the great works!
Please put me in to the draw b/c it’s a very useful book to me I think
Cheers,
–J
42 Ashley Alex // Feb 6, 2007 at 3:41 pm
Good Interview. Pls consider me for the draw
43 Alex Givant // Feb 6, 2007 at 4:18 pm
Wouldn’t mind to get the book!
44 J802 // Feb 6, 2007 at 4:33 pm
great blog and great website by MBai…
thx!
45 Margot Bai // Feb 6, 2007 at 5:09 pm
Wow - so much interest in winning my book!
Thanks CC for your generosity in raffling your review copy away and to everyone for your positive comments.
If you want to get started reading my book right now, chapters 1 & 2 are available for free download on my website http://www.spendsmarter.ca under Sample Chapters.
I wish you all the best of luck and thanks for your support!
Margot Bai
46 Canadian Capitalist // Feb 6, 2007 at 5:19 pm
Margot: I’ve decided to keep the review copy because it is not in a nice enough state to giveaway. One of my boys decided that it made a nice toy to play with. So, I am going to order a new copy of the book for the winner.
Oh, BTW, I didn’t explicitly mention this but the author’s comment doesn’t qualify for the giveaway!
47 Margot Bai // Feb 6, 2007 at 5:23 pm
CC - you are funny!
I would be pleased to cover the giveaway copy for the winner.
Keep those entries coming in!
Margot Bai
http://www.spendsmarter.ca
48 Expectant Mamma // Feb 6, 2007 at 5:30 pm
With a young family. I’m going to put this advice to great use.
Thanks
49 Saver // Feb 6, 2007 at 5:37 pm
I’ve read chapter 1 and 2 online. Sounds like a perfect book for me!
50 Terry Tiessen // Feb 6, 2007 at 6:01 pm
This sounds like a very helpful book. I’ll be happy to have my name in the draw for it.
51 Tim // Feb 6, 2007 at 7:16 pm
Well, I requested this book from the library as soon as you posted about it. But hopefully I will get a copy of my own.
52 Aleks // Feb 6, 2007 at 7:18 pm
“Wow - so much interest in winning my book!”
Well you know, you can save on the big stuff AND the small stuff. Like the price of a book.
53 Bob // Feb 6, 2007 at 7:23 pm
Wow, thanks for the interview!
54 Mike // Feb 6, 2007 at 8:08 pm
CC - I received my copy of the book yesterday so don’t include me in the draw!
A quick comment about the MER for mutual funds since there are a few posts on it. Typically for Canadian equity funds the average MER is around 2.5% and slightly higher for foreign funds. One thing to keep in mind is that for non-back end loads normally 1% of that MER is paid to the advisor as a trailer for doing whatever it is they are supposed to be doing. Although it’s a good idea to shop around for lower MERs - the do-it-yourself approach (cut out the advisor) will be the biggest and easiest savings. Check out CCs ’sleepy portfolio’ if you want a good example. Or check out PH& N as Margot suggests for a low cost mutual fund that doesn’t pay advisors (min 25k).
A few suggestions (baby steps) for those of you who want to cut costs but aren’t ready to completely switch to a diy plan or don’t have the time:
If you have enough $$ invested, I would say a minimum of $50k - negotiate with your advisor - most of the bigger MF companys have options for advisors to ‘give-back’ some of their trailers which would also lower the costs. Usually the MF company also ‘gives back’ a bit as well so it’s not just out of your advisors pocket. If you have more than $100k then demand it. Look for 0.2% to 0.35% discount. If you have more than $250k then ask for more. Another idea is to shop around for lower MERs within the same fund company - most of the biggies have multiple Canadian equity funds for example so you might be able to save it bit there. Lastly - if you own any kind of ‘combined’ product ie allocation funds, balanced funds etc then take a look at the composition of the fund and the MER and compare it with some equivalent funds offered by the same company. For example a Cdn equity fund might have MER of 2.5% and bond fund 1.5% so a balanced fund of 50/50 equity/bond should have an MER of 2.0% right? Not likely, usually it’s pretty close to the equity MER of 2.5% so switch your combined funds into equivalent bond and equity funds if the company offers them (not as many companies offer foreign bond funds).
55 Bindu Tuteja // Feb 6, 2007 at 8:28 pm
Great blog!
56 rab // Feb 6, 2007 at 9:01 pm
great site!
57 David S. // Feb 6, 2007 at 9:14 pm
Excellent interview with the author and by all accounts a great book. Please count me in.
58 Steve Boyd // Feb 6, 2007 at 10:56 pm
I would like to read this book and hope I will be the lucky random pick.
59 Rick // Feb 6, 2007 at 11:47 pm
pick me! pick me!
60 terrence // Feb 7, 2007 at 1:31 am
I would love to read the book, so please give me the chance.
61 Mark // Feb 7, 2007 at 1:35 am
Great blog! Here is my entry for the book …
62 Karen // Feb 7, 2007 at 2:05 am
You’re doing a great service to Canadians everywhere who need good financial advice and information. Thanks so much!
63 Penny Gilman // Feb 7, 2007 at 3:22 am
Lots of very interesting information. Sounds like an idea book to have on hand for reference in order to help a person save money by spending smarter.
thanks for holding the contest and giving us the opportunity to win a copy.
64 Patricia // Feb 7, 2007 at 7:34 am
Sounds like a great read. I’d love to win a copy…
65 Big Cajun Man // Feb 7, 2007 at 9:06 am
You can add me to the list of folks who’d like this interesting book!
66 Dean // Feb 7, 2007 at 9:15 am
Count me in on the draw
67 Jerry // Feb 7, 2007 at 9:20 am
A good read so far. Thanks for having the draw!
68 Marc // Feb 7, 2007 at 9:21 am
66 comments so far !!! Wow
Count me in.
69 Canadian Capitalist // Feb 7, 2007 at 9:26 am
Margot: Thanks for the generous offer. I’ll accept it and I’ll also buy that copy that I intended to originally. So it is now a *two* book giveaway!
70 Sean // Feb 7, 2007 at 9:50 am
Count me in, thanks!
Sean
71 Warren // Feb 7, 2007 at 9:54 am
I appreciate the great review! It sounds like a book that would benefit Canadians of any age.
Cheers,
Warren
72 Kerry Stokotelny // Feb 7, 2007 at 10:47 am
Well if I don’t win the book I will be sure to save my money and check it out from the library rather than purchase it
Great job CC.
73 Deb // Feb 7, 2007 at 11:32 am
What logical advice. I hope to learn even more by reading the book.
Keep up the great columns and money saving advice.
You are a great aid to our positive financial health.
Keep it up, ds
74 Jeff // Feb 7, 2007 at 11:45 am
I’m always looking for books that are practical, and speak to the common man rather than abbreviated texts for those in the know. This sounds like it could be one of those books.
75 Dave // Feb 7, 2007 at 11:57 am
Another great article…I start every morning by reading your BLOG as soon as I get to my desk. Its like my morning coffee it gets my day started…
76 IP // Feb 7, 2007 at 12:45 pm
Great site.
77 Krusty // Feb 7, 2007 at 1:23 pm
Great site, as always.
I was going to buy this book based on the recommendation, but I might as well enter the contest and get it for free
I really appreciate the time the author took to do the interview for this site. It helps me understand their motivation for writing the book, in a manner that is much more personal.
78 Kris // Feb 7, 2007 at 1:33 pm
Sounds like excellent advice to avoid being penny wise but, pound foolish. I enjoy your articles
79 JonathanC // Feb 7, 2007 at 1:33 pm
I’ve only found your site as of January, but have been reading it ever since.
Good posts, and good work.
Thanks for the interesting stuff posted here.
80 Canadian Capitalist » RRSP Tip # 1: Should you Contribute? // Feb 7, 2007 at 1:48 pm
[...] NB: If you haven’t done so already, you have less than twenty-four hours to enter in the Spend Smarter, Save Bigger book giveaway. Details are available at the end of yesterday’s post. [...]
81 Mike M // Feb 7, 2007 at 2:15 pm
Count me in too.
While I can see the “latte factor” crowd’s point that small expenses can add up (and compound over time) more than you’d expect, it’s good to see a book that concentrates on the more major expenses. The sample chapters look good and I’m looking forward to seeing if I can pick up a tidbit or two from the book. I know I would have loved to have read the chapter about mortgages before buying our first house about 6 years ago. We made the mistake of being too conservative and locking ourselves in for too long, at too high a rate (though fortunately we’ve made that up with lots of extra lump sum payments).
82 Harry // Feb 7, 2007 at 4:10 pm
Interesting info. I have you on RSS.
Thanks
83 Ziggy McBean // Feb 7, 2007 at 4:33 pm
I enjoy the posts. Have been a regular reader for almost a year. Great work!
84 Canadian Capitalist // Feb 7, 2007 at 5:00 pm
I did not mention in my post clearly that contest entries should be made in the comments in the blog. I received some email entries and to be fair to them, I am putting down their comments here.
This entry is for Darren & Chris from Saskatoon, SK.
85 Canadian Capitalist // Feb 7, 2007 at 5:00 pm
Entry for Warren from Ottawa
86 Canadian Capitalist // Feb 7, 2007 at 5:01 pm
Entry for J.S.
87 Peter // Feb 7, 2007 at 6:31 pm
Good interview, thanks for the heads up about the book.
88 Dave // Feb 7, 2007 at 6:42 pm
Great site.
My philosophy is
1. Automatic transfers from your pay cheque to buy ETF’s or low cost index funds. RRSP unless you have a great pension plan.
2. Choose an asset allocation appropriate for you and stick to it.
3. Other than mortgages, avoid non-deductible interest like the plague.
4. Buy high quality goods and use them until they self destruct.
5. Take 2 vacations a year with all the money
you make from #1
89 Julien R. // Feb 7, 2007 at 8:03 pm
Cheers from another Canadian Capitalist in NL!
90 Chris // Feb 7, 2007 at 8:11 pm
Just a thought about fund managers being paid for performance.
Although the MER stays the same no matter how well the fund does, people tend to buy funds based on past performance. If the fund performs well, more people tend to buy it thus increasing the overall assets and hence the management fees and hence rewarding the fund managers.
That said, I don’t buy mutual funds and tend to go for the market sector based ETF approach (plus a small percentage of the portfolio dedicated to fun stocks).
I’d really like to read this book and living in Quebec, it’ll probably be awhile before my local library buys it.
91 Karen Waddell // Feb 7, 2007 at 8:40 pm
Sounds like a great read!!
92 hepman // Feb 7, 2007 at 8:55 pm
Everytime you give a book away you get more entries!
93 karen v // Feb 7, 2007 at 8:56 pm
Count me in.
94 anjo // Feb 7, 2007 at 9:43 pm
CC, please include me in the draw for this book. Sounds like another good one.
95 Canadian Capitalist // Feb 7, 2007 at 9:57 pm
The giveaway is now closed. The winners will be announced shortly.
96 Canadian Capitalist // Feb 7, 2007 at 10:51 pm
There was a bit of misunderstanding the last time I picked a winner, so I’ll explain how I picked the winners. I use the random number generator from random.org to generate two random numbers between 1 and 94. If one of them is invalid, I’ll pick randomly again till I have a winner.
This time, the random number generator picked #64 and #53. Congratulations Patricia and Bob. I’ll contact you via the email address you have provided.
Leave a Comment