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2018 Mid Year SPIVA Report

The mid-year 2018 SPIVA report on Canada is available. It paints a damaging picture for active managers. Active investment management attempts to outperform the market return through superior research, analysis and tactics. Passive managers attempt to replicate the return of the market by owning every security in the market at its market weight. “Passive” is a word with negative connotations. This is not the case in the context of investing. Passive investing is synonymous with index investing. The theory states that passive investment management always outperforms active investment management over any time-period after-cost. The theory is sound. A market capitalization index return i

Insight into GICs and Online Brokers

GICs have a place in any portfolio, especially RRSP and derivative accounts and TFSAs. If they fit in your portfolio it is essential that you get the highest interest rate. This can be certain through an online brokerage account. First, let’s talk about the interest rate you receive when you lend your money to a financial institution. Interest rates are a factor of many things. Two important factors are the prevailing interest rate and the credit quality of the company or institution you lend your money to. Prevailing interest rates dictate much. They are low these days. A 5-year Government of Canada bond pays around 2.4% in mid November 2018. A 5-year corporate bond will price off t

A Financial Advisor Could Cost You $2,973,001

Consider this. A young man and woman both have a sense of family and future family. They are both 25 years old and just starting their careers. They decide to devote their TFSA accounts to passing wealth on to the next and future generations. They decide to contribute $5,500 per year to their TFSA accounts for rest of their lives and both plan on passing away at the age of 92. The young man uses the services of a financial advisor. The advisor places the young man in actively managed equity funds that give exposure to the Canadian and U.S. equity markets. Total cost is 200 basis points (two percentage points) per year. The five cost centres must be paid. The young woman is her own fi

Reading a Fund Fact Document

All funds have a document described as a fund fact. The fund fact gives fundamental information about the fund. It doesn’t give all necessary information, but it does give total cost. We will have a look at RBC Canadian Equity. The fund is managed by RBC Global Asset Management, a division of Royal Bank. RBC Global Asset Management make all the investment decisions. The investment decisions are constrained by their mandate. The mandate is that it is a Canadian equity fund. The fund can invest some in companies outside of Canada, but the majority of the money managed by the fund must be invested in shares of Canadian companies. Cost to the fund investor is described at the bottom of pa

Rebalancing is a Buy-Low / Sell-High Strategy

Since the beginning of the October to the low point of October growth (equity) markets around the world have fallen roughly 10%. The safety portfolio, such as a GIC or short-term bond ETF like Vanguard Canada’s VSB, is flat. So, the growth portion of a portfolio has fallen drastically over the month and the safety portion has remained flat. Rebalancing is the process to get the distribution of savings back to the target distribution and should be done periodically and specifically when markets move drastically. To illustrate the process let’s imaging that $100,000 was placed into investments at the beginning of the month with a 60% growth / 40% safety asset allocation. The growth portion