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Four Interesting Stories From 2011

Jim Yih — Tue, 10 Jan 2012 10:00:44 +0000

One of my regular media gigs is sitting on the Alberta Primetime Monday Money Panel and for our year end show, we were asked to talk about some interesting stories from 2011 or share stories of interest and things we are watching in the new year. 30 seconds is not much time to respond properly to this question so I thought I would share four of my tops stories from 2011.

Pooled Registered Pension Plans (PRPP)

In January 2011, Finance Minister Jim Flaherty introduced the concept of a new PRPP as a means of trying to address the big retirement gap in Canada.

Later on November 17, 2011, the Harper government introduced the Pooled Registered Pension Plans Act(Proposed Act) legislation as the next step to the process of implement the federal portion of the PRPP. The government describes the PRPP as a change to Canada’s pension landscape that will make saving for retirement easier for millions of Canadians.

Being a strong advocate of workplace savings programs and financial education in the workplace, I have followed this story closely and written some articles:

The next steps for the PRPP is the Federal Government needs to pass this Proposed Act and adopt regulations. At the same time, work on provincial legislation and the multilateral agreements will need to be undertaken.

Task force on Financial Literacy in Canada releases their findings report

In the 2009 budget, the federal Minister of Finance announced his intention to establish a national task force dedicated to the issue of financial literacy. The Task Force would provide advice and recommendations to the Minister of Finance on a national strategy to strengthen the financial literacy of Canadians. Appointed in June 2009, the Task Force on Financial Literacy is comprised of 13 members, drawn from the business and education sectors, community organizations and academia.

On February 9, 2011, Canada’s Task Force on Financial Literacy today made public its report to the federal Minister of Finance, recommending urgent action on a national strategy to strengthen Canadians’ financial literacy. I am watching this story to see if this whole process makes an impact on the future financial literacy in Canada.

Vanguard comes to Canada

Back in June, US mutual fund giant Vanguard announced it’s intention to come to Canada with a series of Exchange Traded Funds (ETFs). In December they actually launched 6 ETFs with very low management fees. The management fee for all six Vanguard ETFs averages 0.24 per cent and the Canadian Equity Fund is reported to be 0.09 per cent.

I’m especially interested to see if the Vanguard Canada is able to create more awareness about the high fees being charged by the mutual fund industry. Canada has been reported as having some of the higher mutual fund fees around the world but despite that it remains the investment of choice for Canadians with $775 billion dollars of assets under management. ETFs have significantly less assets with less than $40 billion in assets under management.

Vanguard is targeting their ETFs to investment dealers and fee based advisors because the do-it-yourself market is too small (only 5% of all investors in Canada). Here’s a few articles I wrote on the topic:

Another year of Market Volatility

The last hot topic of 2011 was another tough year with more volatility. The TSX finished the year in negative territory (-8.89%) despite some hopes for a Santa Claus rally. The TSX hit a high of 14,329.50 and a low of 10,848.20 with 8 of 12 months with negative returns. September was the worst month of the year where the TSX lost 8.66% in a single month. October followed with the best month rebounding a 5.61% return.

In my line of work, I see a lot of investors who have accepted the volatility as normal and others who are just sick and tired of all the ups and downs and the market taking away any gains they make the previous weeks, months or years.

To help investors, here’s a few articles I wrote about dealing with market volatility:

Are there any interesting stories you are watching for 2012?

Best wishes to everyone in 2012.

Four Interesting Stories From 2011 originally appeared on Canadian Finance Blog on January 10, 2012.

Want An Investment That Can Manage Itself?

Guest — Thu, 13 Jan 2011 10:00:00 +0000

Want an investment that can manage itself? ETFs may be exactly what you need

The problem for investors is really the quality of investment market products. Stocks can be a turgid trek through the icy depths of the down market, bonds can be considerably less exciting than watching grass grow, futures can seem downright nutty, the forex market is great if you’re a calculator, and the commodities markets could confuse a house brick. Some investors, particularly managed funds, are moving to Exchange Traded Funds as more reliable and more dynamic investment options.

The short end of self managed investment, and how to avoid it

The problem is common to all investors… how to minimize risk and get a reliable rate of return? The stock market can pay very nicely, but not for long periods of time. Accumulating capital is often tricky, particularly if it involves tying up capital and managing a budget.

The other risk factor is losses, and they can get nasty. A few hits from the market can make an investment portfolio look pretty sorry for itself. Investors feel, with reason, that the market is too often a good way of going backwards. Even expert traders take these hits every once in a while. Most investors don’t think they should need to take a survival course to make money off their hard- earned cash, and nor should they.

Exchange Traded Funds – Covering bases the easy way

Exchange Traded Funds are basically like mutual and unit trusts. Your money is invested in a basket of stocks within a defined index or class of stocks. ETFs trade as units, at prices determined by the net value of the fund’s holdings. These funds also issue dividends, and occasionally do splits, issuing more stock on the basis of holdings.

Note: ETFs do charge management fees, usually less than 2% of the value of the funds under management.

As all investors find out sooner or later, the usual state of the market is that some indices are doing well and others aren’t. ETFs allow people to spread their investments across several indices at once. The big advantage for investors is that ETFs are also a great way of investing in things like Aerospace, energy, food, and blue chips. Instead of following individual stocks around until you can make some money on them, the ETFs, which have their risks better spread, benefit from sector movements.

ETFs and the future

Maybe you’re thinking, what is ETF? ETFs trade in real time on the stock market, and they’ve become very popular among traders for their reliability. About $1 trillion of funds is currently under management in the US, and the ETFs have become so successful that even the mutuals and major banks like Deutsche Bank are starting to introduce their own Exchange Traded Funds.

If you’re looking for a way to invest selectively with minimal management issues, ETFs are definitely worth a look. The major online finance sites allow you to do thorough research on ETFs, check performance history, and see how the returns on investment work.

There’s no need to suffer to invest your money. Check out the ETFs and see what’s possible.

Author Bio: Tim Millett is an Australian freelance writer and journalist. He writes extensively in Australia, Canada, Europe, and the US. He’s published more than 500 articles about various topics, including managed funds.

Want An Investment That Can Manage Itself? originally appeared on Canadian Finance Blog on January 13, 2011.

Dividend Funds That Don’t Pay Dividends

Tom Drake — Tue, 18 Aug 2009 09:00:07 +0000

There are many great dividend stocks in Canada. I personally have about 30 that I’m watching for when I begin my Smith Manoeuvre. However, if you’re looking to mutual funds to fill the Canadian dividend portion of your portfolio, you may not be getting what you pay for.

First off, since these funds have Management Expense Ratios (MERs) in the 1.6-1.7% range, this creates quite a drag on the dividend income you can expect from this type of fund. To compensate for this, fund managers have to look elsewhere to bring the payout back up.

Four of the five major Canadian Banks have Canadian Dividend funds that are made up of only about 85% Canadian equities. TD bank was the only exception, being in the 95% range. The rest of these funds include T-bills, as well as US and international equities. Even within the Canadian equities portion, not all stocks are dividend paying equities and other stocks have low or unstable dividend payments.

This creates a few issues. You are not getting only the dividend paying equities that you were looking to add to your portfolio, you are likely just adding another high-MER equity fund with a different name. This fund will also not provide the tax efficiency of a true dividend only fund, since the payouts include capital gains and return of capital (ROC).

So what are your options for adding dividend paying companies to your portfolio? With mutual funds, not much, though the TD Dividend Growth funds may be closer to the real thing. Your best option might be Exchange Traded Funds (ETFs). Two great choices are the iShares CDN Dividend Index Fund (XDV) or the Claymore S&P/TSX Canadian Dividend ETF (CDZ). While you would have to pay commissions to buy these ETFs, the 0.5-0.6% MER and the fact that you get the dividend paying stocks that you’re looking for will make it worthwhile.

Dividend Funds That Don’t Pay Dividends originally appeared on Canadian Finance Blog on August 18, 2009.

Canadian Index ETFs – XIU vs XIC

Tom Drake — Tue, 10 Mar 2009 10:00:28 +0000

When looking for an Exchange Traded Fund (ETF) that indexes Canadian equities, the two most suitable choices are from iShares.

The iShares CDN LargeCap 60 Index Fund (XIU) tracks the S&P/TSX 60 Index. This index is composed of S&P’s selection of 60 of the largest, most liquid stocks on the TSX. The Management Expense Ratio (MER) on this ETF is a very low 0.17%.

The iShares CDN Composite Index Fund (XIC) tracks the S&P/TSX Capped Composite Index. This index includes over 200 companies listed on the TSX. It’s MER is 0.25%.

I believe XIC is worth the extra 0.08% MER as is provides much more diversification, including some exposure to small cap stocks. Ultimately, either of these ETFs will provide a better return than the majority of actively managed funds, which are dragged down by higher MERs.

Canadian Index ETFs – XIU vs XIC originally appeared on Canadian Finance Blog on March 10, 2009.

Money Sense

Tom Drake — Tue, 03 Feb 2009 18:00:13 +0000

Money Sense has been a very inspirational magazine to me. Whenever I find the latest magazine in my mailbox I stop whatever I’m currently reading to read it from cover to cover. Their articles cover everything related to money, including leveraged investing, financial makeovers, real estate and rating stocks. They also have interesting articles on buying cars, surviving the current recession and rating the best places in Canada to live. One of the most eyeopening articles has been their Couch Potato strategy.

When I first read about the Couch Potato strategy I realized how simple investing can and should be. The basic premise is that by investing in ETFs or TD’s eFunds you can build a portfolio that equals the various indexes, 20% in Canadian equities, 20% in US equities, 20% in international equities and 40% in Canadian bonds. All with management expense ratios (MER) under 0.5%. While you won’t do any better than the market, you also won’t do any worse, just average. This is better than it sounds since, as a whole, the market is the average, but in regular mutual funds you’re getting the average minus expenses that equal more than 2%.

I highly recommend that you have a look at Money Sense magazine.

Money Sense originally appeared on Canadian Finance Blog on February 3, 2009.