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Email this2:14 pm
October 21, 2013
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I appreciate what you are saying, Greg. Will just have to spend more time on it. Your comment on the different impact of 10% depending on size of portfolio is rather like the impact of the percentage-of-assets fee charged by some planners/advisors/managers. The more you have, the more it's gonna cost you to keep it! Fee for advice has to be the solution, but I have found it hard to find genuine fee-for-service pay-by-the-hour qualified people where you only have to pay for the advice you actually want to hear. I don't really want someone to ask me if I have a will etc., which seems to be what some of them think is their job, and you are paying for that whole package whether you want all of it or not.
My problem with the "financial plan" and those whose job it is to produce one is that I am not sure that such a thing is really possible. Those who would create financial plans are always certain that one must diversify into the stock market, one way or another, and they all seem quick to wave the spectre of inflation in front of one's eyes - which may or may not occur, and who knows when or how much? I personally think inflation is and will continue to be high, despite what the central bankers say, because the things that I can't get along without are skyrocketing, but financial planners tend to be fixated on the 2% which the central bankers say is their goal.
How anyone can "plan" anything based on stock market returns is beyond me. I believe they are always and necessarily speculative, "past performance" not being a predictor of "future success". Numbers 1,2,3,4 above are indeed what CFPs are trying to address, but they will not and cannot guarantee the result. So I tend to think I would be better off self-educating since "no one cares about your money more than you."
I think what they are selling is a sense of security, which may or may not be warranted. Everyone I have spoken to so far (not too many!) has said that they like their planner because they now feel more confident, that they have a road map etc. Some have been happy with results to date; others have not. The ones that aren't happy are sometimes reconsidering whether to stay with the planner. It seems to be a feel-good profession, otherwise known as sales. "I will make you feel better by reassuring you that you have a plan and ought not to suffer any calamities." The amount of training they have dos not seem extensive, to me, having looked at some of the curricula online. I think most of us could learn what they learn by taking the Cdn Securities Course (which they also take as part of their curriculum, and is available to anyone) and reading a number of books. Some libraries even carry the journals they use. I'll bet that some people on this site know more than some official planners. I recall my now-deceased father was in the habit of phoning up his broker and asking him about something he'd read in the newspaper; the broker wasn't aware of it and told dad that it looked like a good deal and he should probably buy it; and so he did - exactly what he would have done without talking to the broker. I realize a broker is not the same as a CFP. But it sure would be nice to think one was dealing with someone who was objective and well educated, not a glorified salesman.
2:29 pm
October 21, 2013
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Greg, looking at your asset allocation again. You are basically 50:50, which some might consider high on equities for a retired person in your age group (as you disclosed earlier). Where would you place yourself in terms of risk tolerance? The reason I ask is that I had thought that people involved in this website would likely be more risk averse? Maybe not. Maybe you have a different concept of "risk" that you could share? I am bewildered by the many definitions of "risk", and have sometimes thought that the lowest risk might actually be the widest diversification, which runs contrary to the idea that one would invest less in equities and more in fixed income as one ages.
I did look at Couch Potato strategy several times over the years. It makes good sense to me, but when I tried to convince a friend of its validity, the reaction was very negative as they did not think one was making reasoned decisions about individual investments. I don't fit the profile for the link they give for the DIY investor who might be willing to pay 3G to have people set it all up for them, so that is not an option. (That's even more expensive than hiring a CFP to write up a financial plan! - wherein, from what I have seen, you have to do all the hard work of decision-making and they just plug in their formulas to match.)
9:37 am
February 22, 2013
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Loonie:
Quick response as I find myself overloaded with life right now.
Reading your question about my risk profile opened my eyes to one thing. Besides my aversion to risk, my risk profile is also based on the amount of assets I have. Said poorly -- but I know what I mean.
If I had, say, $200,000 in assets, $1,000,000 in assets or $5,000,000 in assets, my "fear" would be totally different in each case. As you said, I am roughly 50/50 and I know what my ACB is, what my current worth is, and what various drops in the market would do to me. I also have a life expectation. All these things are mentally factored in by me.
Greg
9:54 am
October 21, 2013
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I see what you mean, I think, Greg. Sometime when you're not feeling so inundated with life, what's an ACB?
3:51 pm
October 27, 2013
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Loonie said
I see what you mean, I think, Greg. Sometime when you're not feeling so inundated with life, what's an ACB?
Adjusted Cost Base. It is what an owner of an asset (outside of registered accounts like RRSPs and TFSAs) has to keep track of for the purposes of calculating capital gains (and cap gains taxes) when the asset is sold. The ACB of an asset starts with what one paid for it in the first place plus buying costs such as commissions.
4:28 pm
April 6, 2013
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Loonie said
My problem with the "financial plan" and those whose job it is to produce one is that I am not sure that such a thing is really possible. Those who would create financial plans are always certain that one must diversify into the stock market, one way or another, and they all seem quick to wave the spectre of inflation in front of one's eyes - which may or may not occur, and who knows when or how much? I personally think inflation is and will continue to be high, despite what the central bankers say, because the things that I can't get along without are skyrocketing, but financial planners tend to be fixated on the 2% which the central bankers say is their goal.How anyone can "plan" anything based on stock market returns is beyond me. I believe they are always and necessarily speculative, "past performance" not being a predictor of "future success". Numbers 1,2,3,4 above are indeed what CFPs are trying to address, but they will not and cannot guarantee the result. So I tend to think I would be better off self-educating since "no one cares about your money more than you."
I think there is some misunderstanding. A financial plan is a plan for success and not a recipe for success. The plan will need to be updated and adjusted as one's life unfolds and actual results, like actual inflation and actual investment returns, replace the educated estimates.
Becoming educated and creating one's own plan will ensure there's no sales-related bias in the plan. However, the uncertainties from life will still be there in a do-it-yourself plan too.
One doesn't need to diversify into equities if one can reach one's goals with the expected rate of return from GIC's and bonds. If not, then one will need to either save more or reduce one's goals.
10:51 pm
February 22, 2013
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Loonie:
AltaRed explained it well.
If I were answering it without seeing his answer I would have said simply: Adjust Cost Base - well defined here.
I use Investopedia for lots of the "what does this term mean" type questions.
Greg
11:19 pm
February 22, 2013
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Loonie:
Back to Financial Plan.
First - fee only financial planners -- here's a starting point. The list will give you an idea of what is out there. However, I doubt it is anywhere near complete as I immediately find Weigh House Investor Services and Ed Arbuckle absent from the list. The first is the firm I used and the second writes in Canadian Moneysaver to which I have subscribed for years.
For most people the hardest part of a financial plan is understanding what their current outgo is. Income is fairly easy as most of us have paper or electronic records for it. As well, we typically have relatively few sources of income.
Our consumption/spending/outgo is something we all think we know but I'd bet few really have a handle on it. I am fortunate as I got anal about it in 1990 and started tracking everything in Quicken. And I do mean everything. As a result when the chap I contracted to review my finances a few years ago started out, he asked for my estimate of spending and copies of my statements from brokerage houses, etc.
Within the hour I had emailed him my "spending and income by category", "account balances" and "portfolio" reports. He called me back and suggested he had assigned one of his analysts to work with me but realized that work was already done.
It takes real work to manage your money and most people don't want to expend the energy or time.
As Norman1 said above - a plan is a plan. None of us know for sure what is going to happen tomorrow or next year. I have counseled folks on budgeting and always have to explain that a budget is "an aiming point" not something cast in concrete. If one budgets $400 for food and one is wrong, one doesn't stop eating. But, one can use the $400 figure and the overage to judge whether the $400 is wrong or the spending is wrong.
Hope some of this helps.
Greg
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