Archive for November, 2009

Financial Security: It’s Simpler Than You Think

November 8, 2009

[Front Cover of You Can't Eat Your Furniture]

[Note: Today’s post is an excerpt from a recent new book titled “You Can’t Eat Your Furniture: A Simple Plan For a Well-Fed Retirement“. The author, Robert Chown, is an investment advisor with one of Canada’s leading investment firms. In the first chapter, part of which is excerpted below, Mr. Chown argues that only two factors matter when it comes to retirement planning: the rate of savings and the rate of returns. It may just be common sense but the basics are often forgotten in personal finance discussions. Enjoy…]

My clients are mostly well-educated, intelligent, high-earning professionals who have everything going for them from a financial standpoint. But before they sought my advice, many were not on track to reaching their financial goals. As often as not, they didn’t even have clearly defined financial goals.

If these folks find it hard to set and achieve such goals, then obviously income, intelligence, and education are not prerequisites to achieving financial security. This is good news for the rest of us!

No matter who you are, achieving your financial goals can be simple. Consider, for example, the goal of building a retirement nest egg. From a purely mathematical point of view, success or failure rests on only two variables: your rate of savings and your rate of return.

Your rate of savings is how much you save for retirement, and when you save it. Your rate of return is a measure of the performance (over a given period of time) of the investment products in your portfolio. Investment products can include stocks, bonds, mutual funds, real estate, and guaranteed term deposits, to name just a few.

These two variables are equally important. For instance, your rate of return may be stellar, but you will not accumulate enough capital if your rate of savings is too low. Conversely, your rate of savings may be adequate, but you will not accumulate enough capital if your rate of return is too low. Either way, if you don’t accumulate enough capital, you won’t be able to retire as soon as you planned to, or you will have to get by with less retirement income than you had hoped for – or both.

Now that you know that only two variables determine your success, you can create a simple mathematical model of your retirement strategy. Once you assign a value to one variable, you can calculate the other. For instance, if you assume a rate of return, you can calculate how much you need to save over a given period of time to achieve your retirement objectives. If you assume a rate of savings, you can calculate the rate of return you need to achieve your retirement objectives. Many financial management software products and websites have tools to help you perform these calculations.

From a mathematical standpoint, everyone who starts with a reasonable set of assumptions should be able to find out what they need to do in order to meet their retirement goals.

If It’s So Simple, Why Doesn’t Everyone Succeed?

We’ve now narrowed down the entire financial planning and investment industry to only two variables, the rate of return and the rate of savings. Everything else is superfluous. This means that you need to focus on just two things for your retirement strategy to succeed. But it also means that there are only two things that can cause your retirement strategy to fail: either you don’t save enough or you don’t get an adequate rate of return. This may seem simple, but if you don’t have a plan, you can be sure that distractions, temptations, and human foibles will conspire against you.

[You can read the rest of Chapter 1 here. The book is available on for around $15. I’ll be posting my book review in the near future.]

This and That: Who killed Nortel and more …

November 5, 2009

  1. Ten years back Nortel looked invincible. Today, it is in bankruptcy protection and its business units are being sold off piece by piece. The Ottawa Citizen’s James Bagnall is writing an eight-part series on the fall of an once-proud telecommunications giant.
  2. There is a widespread belief among investors that 1970s style inflation is inevitable. Money manager Leith Wheeler reckons that inflation is unlikely to be as high or as prolonged as it was back in the 70s.
  3. Charles Schwab announced a slew of low-cost, broad-market ETFs this week that could be bought and sold commission-free through a Schwab account. Larry MacDonald speculates if other ETF vendors would be forced to cut MERs or even reimburse trading commissions.
  4. It may sound harsh but it must be asked: Do Canadians deserve the MERs they get? Jon Chevreau writes that Canadians are apathetic about investing costs and mutual funds rarely pass on the savings from economies of scale to unit holders.
  5. A recent TD economics report put the cost of a future university education in five figures. Million Dollar Journey debates how he plans to fund his child’s post secondary education.
  6. Michael James reviews Super Trader: Make Consistent Profits in Good and Bad Markets and find little evidence the book will help anyone trade profitably.
  7. Canadian Financial Stuff reports that TD Waterhouse is finally offering a RDSP account.
  8. The Dividend Guy kicked off a series of posts on the top 100 investment lessons he has learned.
  9. Mike has a stocking stuffer idea for Christmas — Investing Made Simple book.
  10. The Intelligent Speculator debates if currency-hedged ETFs are good or bad.

Check out the A Loonie Saved blog written by Patrick. He doesn’t update it often these days but there are some excellent articles in the archives. Have a wonderful weekend everyone!

2009 Globe and Mail Discount Broker Rankings

November 4, 2009


For the fourth year running, Qtrade finished first in the Globe and Mail’s ranking of online discount brokers. Credential Direct, BMO InvestorLine, Scotia iTrade and RBC Direct Investing round out the top five. TD Waterhouse missed a spot in the top five in a photo finish.

I’ve held accounts at TD Waterhouse, RBC Direct Investing, Scotia iTrade and Questrade and would rank them in that order. I wouldn’t read too much into a broker’s rank and would instead pick one that offers the features I’m looking for (or at least a nice fat bonus).

Some interesting tidbits from the Globe and Mail column:

  • Qtrade is now offering US dollar RRSP accounts. Either Qtrade has been keeping it quiet or I missed any media coverage on this.
  • Discount brokers are doing roaring business. Rob Carrick, who assembled the rankings, notes that account openings, excluding TFSAs are up in the range of 19 to 26 percent.
  • Scotia Direct is going to be merged with Scotia iTrade (formerly E*Trade Canada), which is not surprising because CIBC and Scotia are still in the bottom of the heap among discount brokers.
  • RBC Direct is the only broker offering lower-fee mutual funds. It is outrageous that discount brokers keep collecting trailers fees, which are supposed to compensate financial advice.