Comments on: Comments on RRSP Tip # 1

By: Dave

Dave — Fri, 09 Feb 2007 17:18:19 +0000

“Not saving up so that you can receive OAS after you hit 65 isn’t terribly different from deciding to halve your income so that you can qualify for the National Child Benefit.”

I love the analogy!

By: Phil S

Phil S — Fri, 09 Feb 2007 17:16:22 +0000

I don’t understand the systematic aversion to private equity. Private equity is just not publicly listed assets and it can be a variety of asset classes. If you buy a rental property (and many people do), then that’s private equity. And a publicly listed private equity firm gives you access to non-listed companies through a listed company. I prefer the ones that mix it up with private debt so as to be able to generate revenues, instead of pure venture capital. Perhaps that David Swensen guy might be referring to venture capital, which is more risky?

By: Canadian Capitalist

Canadian Capitalist — Fri, 09 Feb 2007 15:44:00 +0000

My opinion on LSIFs are similar to Mike’s. Average investors are easily sucked into investing in them and they are almost always dogs. Not to mention, according to David Swensen, average investors shouldn’t even try to get exposure to the private equity asset class, which he calls non-core.

There is another reason why advisers push this product hard. They have a built in 6% up front commission, MER’s that average 5% and a very poor track record. To add insult to injury, you can’t even easily dump them.

By: Phil S

Phil S — Fri, 09 Feb 2007 13:03:32 +0000

Hi Mike. I certainly don’t disagree with you and I own shares of a couple of private equity firms in my investment account where I didn’t get any tax breaks. I have also bought LSIFs in the past and got burned by a couple of them.
The way that the KPMG guide explained it to me is that the government wanted to promote venture capital in Canada. They obviously wanted to put restrictions on it so that the money isn’t used to invest in existing publicly listed companies, it shouldn’t be invested out of the country and they didn’t want short term traders jumping into and out of venture capital either. Government recognized that small businesses and entrepreneurs drive innovation in Canada which eventually lead to prosperity, larger companies, jobs, yada yada.
I really really like the “spirit” behind what they’re trying to achieve. It’s just unfortunate that the early adopters of this asset class are mostly crooks or at the very least incompetent hacks.

By: Mike

Mike — Fri, 09 Feb 2007 04:42:53 +0000

and furthermore…how did these tax breaks get started? I remember something about how the initial funds were sponsored or associated with unions? Was the gov’t trying to suck a few votes with this thing?
My question is why does this particular “asset class” even need tax breaks…we’re not talking about art galleries here or charities. Did Google get some special tax break before they went public to ‘help them out’? YouTube? MySpace? What about Tim Hortons? Surely that poor Canadian company couldn’t have been successful without some sort of special tax break before it went public?

Ok the valium is starting to kick in – time for bed.

p.s. in my previous post I meant to say “the government AND saps like me”. My rage against these funds makes it hard to type

By: Mike

Mike — Fri, 09 Feb 2007 04:29:25 +0000

Phil, at this point I refuse to accept the idea that there is an LSIF anywhere that isn’t out to collect my money and then spend it on boozy office parties and their wives home businesses while they laugh at both the government saps like me for funding their shenanigans!

But seriously – you stated it perfectly – the idea is there, too bad the criminals took over. I also really don’t care if there is the odd “non-bad” fund – if you have a basket of apples and have to search through the whole basket to find one good apple…just throw the whole damn thing out!! And press charges where appropriate.

By: Phil S

Phil S — Thu, 08 Feb 2007 22:22:52 +0000

Mike. While I agree that most LSIFs are poor investment choices, I don’t think they are ALL bad and I definitely like the idea behind that investment vehicle. For example, if you had an LSIF that was run by people of the same calibre as a private equity firm, then you would get great returns. The obvious problem is that most of these funds are run by financial hacks who are only in it to charge exhorbitant MERs (9%+) and made stupid investments that probably put money into companies started by their friends. If this investment vehicle weren’t so abused, then I think it would be a great investment vehicle.

By: Phil S

Phil S — Thu, 08 Feb 2007 22:18:07 +0000

RSPs aren’t for everybody. For example, business owners don’t have any “earned income” as defined by Rev Can so aren’t eligible for an RSP. Lower tax bracket Canadians don’t have any tax incentive to contribute and the wealthy usually don’t need an RSP since they have enough money to retire at any time anyways. It’s really only us middle class working stiffs who need it as a tax break.

By: hepman

hepman — Thu, 08 Feb 2007 21:52:31 +0000

Many people talk about how their homes will be used to fund retirement as a reason not to invest in RRSP’s. I think this is dangerous. What if the population keeps level or even drops and all the boomers start selling their homes. Fewer people buying and more selling. Prices start to drop and their goes the retirement nest egg you were counting on. What about diversification? All your assets in real estate, that’s great diversification!

By: Canadian Capitalist

Canadian Capitalist — Thu, 08 Feb 2007 16:16:20 +0000

Larry: My expectations for future returns are in the 7-8% range but that is because my portfolio will be 80% in equities with a significant portion in small caps. For a traditional portfolio (60% equities 40% bonds), I’ve seen pension plans making assumptions of 5% returns.

You are also correct that fees and investment behaviour such as frequent trading and performance chasing greatly reduces returns. From my own experience and from the behaviour of people around me, I think investors are their own worst enemy.