This is a video post by Ed Rempel.

Financial Planning is not about the money itself. It is about what the money will do in your life. This video will highlight why you DO NOT get financial security by paying off debt and safe investments. It comes from having a huge nest egg.

[youtube_sc url=”” title=”Financial%20Security%20comes%20from%20a%20huge%20nest%20egg”]

Question: From your experience, how do people really benefit from financial planning?

Financial planning is not about the money itself. It’s about what the money will do for you in your life. A plan is not a bunch of numbers – it is about your life. Our clients find that our planning meetings are actually fun.

For example, we ask clients: “What’s important about money to you?” The #1 answer we get is security. They want to know there will always be enough income for their family, for emergencies, or for things important to their lifestyle.  A plan can help you and your family achieve financial security.

Question: Can’t they get financial security without a plan?

We find most people that want security do exactly the opposite of what they need to do to get it. The common mistake people make is to think they can be financially secure by paying off debt and having safe investments.

We call it this the Zero Plan. Their goal is to retire with zero debt, zero investments (nearly), and zero income (except a bit from the government). Investing very little money and buying low return investments means you never build up much of a nest egg.

Real security: comes from having a huge nest egg.  I’ll give you a simple example. Who is more secure?

  • Person A: With no mortgage or.
  • Person B: With a $200,000 mortgage and $1 million in investments. That’s what real financial security is.

Question: How do you get financial security then?

Building a nest egg probably means you need to invest in the stock market. It does not have to be scary, though. You can invest successfully and safely in the stock market. Here’s what you need to do:

  • First, you need to think long term. The growth of the stock market has been quite consistent if you invest long term.
  • Second, you need a solid investment strategy. Our strategy is to hire the world’s best investors. We call them, “All Star Fund Managers”. Knowing they are investing for us gives us confidence.
  • Third, you need a long term, written plan so you know what you are doing.
  • Fourth you should work with one financial planner you trust.

In short, you do NOT get financial security by paying off debt and safe investments. It comes from having a huge nest egg.

“Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Opinions expressed are the personal opinion of Ed Rempel.”

About the Author: Ed Rempel is a Certified Financial Planner (CFP) and Certified Management Accountant (CMA) who built his practice by providing his clients solid, comprehensive financial plans and personal coaching.  If you would like to contact Ed, you can leave a comment in this post, or visit his website  You can read his other articles here.


  1. Greg on October 31, 2012 at 10:47 am

    This sort of content makes me less likely to read this blog. A big ad influencing people to borrow to invest with advisers and fund managers that skim fees and expenses that are a percentage of your total investments. Not even an all-star fund manager can beat the markets after expenses. It is better to invest in a low expense index tracking product. This post is not good advice.

    Now if only I could find an advisor or fund manager that would charge me a percentage of my invest gains *and* pay me the same percentage back of investment losses. Then our interests would be aligned.

  2. FrugalTrader on October 31, 2012 at 11:13 am

    @Greg, although it may appear commercial, this post is not sponsored. The message I get from this post is that people should invest in inflation beating assets. My opinion is that people should pay down debt first BUT invest with the free cash flow after the debt is eliminated.

  3. Ed Rempel on October 31, 2012 at 11:47 am


    The point of this video is that what most Canadians do to try to become financially secure is precisely what prevents them from ever being secure.

    Financial security is important to them, so then focus on paying off debt and investing in very safe investments. As a result, they end up retiring with a paid-off home and very little in investments. They end up being “house poor” or “poverty millionaires”.

    I have seen many of them. People living in a large paid-off home on less than $20,000/year before tax. You can call them any time day or night and they will answer – because they have no spending money.

    It comes down to how you look at financial security. Here is the question: “How would you feel if you had a portfolio of $1 million invested in the stock market?”

    For most Canadians, that is a scary thought. Therefore, obviously those Canadians will never have a significant portfolio. They are scared of it.

    At the same time, most Canadians enjoy a comfortable lifestyle that they do not want to give up. Most families have 2 incomes, with an average family income close to $80,000.

    At retirement, they want a similar lifestyle, less the mortgage payment and cost or the kids, plus a bit for additional travel and entertainment, which means they want at least $50,000/year before tax as a retirement income. (The majority we see are quite a bit higher than that.)

    If you use a rule of thumb based on the “4% solution”, you would need $1.25 million so that you can take out 4%/year and take your modest $50,000/year retirement income.

    My point is that financial security comes from having a large portfolio, say $1 million or more. Most Canadians are scared to have $1 million in the stock market and will never get anywhere close, yet at the same time would consider retiring on less than $50,000/year to be very low.

    We find this to be an important issue that needs to be discussed. We have always seen with many Canadians, but this is even a bigger issue today with the very cautious mood of investors.

    – If you have a paid-off house and $100,000 in investments, are you financially secure?
    – If you have $1 million portfolio, are you financially secure?

    How do you do define “financial security”?


  4. Traciatim on October 31, 2012 at 12:16 pm

    I know it’s a little silly, but I think you should not capitalize the d in “Planning with ED” on your logo . . . ED makes it looks like it’s initials of something completely different ;)

  5. Ed Rempel on October 31, 2012 at 12:32 pm

    HI Traciatim,

    That’s hilarious! I never realized that. I always get a kick out of the ED commercials.


  6. BenE on October 31, 2012 at 12:45 pm

    If this post is not an ad for self proclaimed financial experts, it is just bad advice. However, the proof that something shady is going on:

    Person A: With no mortgage or.
    Person B: With a $200,000 mortgage and $1 million in investments. That’s what real financial security is.

    That is not an honest argument because the difference between A and B mostly doesn’t have to do with the fact that Person B has a mortgage. It has to do with Person B having $800 000 more net worth. An honest argument would be:

    Person A: With no mortgage and $800 000 or.
    Person B: With a $200,000 mortgage and $1 million in investments.

    Obviously having a larger net worth and getting better returns is what everybody want. However, since money doesn’t grow on trees…

    The post then follows with these ‘non-sequiturs’ that
    1) Stocks are best because they have been in the long term past.

    Markets are anti-inductive ( trying to reproduce past performance on any time frame is a sure way to lose your shirt.

    2) Hire the world’s best investors.

    This is what people tell you when they want to get you to pay fees and skim your savings. On average you lose when you do this. An honest good investor would only charge you for returns he gets above a broad index. For example, if the SP500 gets 5% and he is able to get you 7% you would each get something like half of the difference (7%-5%=2% means you keep the 5% plus each get 1%). He would also split the cost if he makes below index performance. If someone really thought they could beat the market they would offer this to you. I’ve never seen it though.

    3) You need a long term, written plan so you know what you are doing.

    Writing it down is not going to make money appear out of thin air. The insinuation here is that you need someone to help you with that. This is always for a fee or a cut of your money.

    4)You should work with one financial planner you trust

    Ah… here the ad for financial planners is even more explicit.

    The truth is that you should never ‘trust’ your financial planner and be very skeptical of anything he tells you that diverges from buying low cost broad index funds and safe bonds. But you don’t need a planner for that. Just buy low cost broad index funds and bonds!

  7. Al on October 31, 2012 at 2:08 pm

    The real point worth taking away is that unless you take some risks in your life you won’t have financial security at retirement and you most definately will not get there with a ridiculously conservative portfolio skewed towards bonds and GICs (unless you make boatloads of money or are in line for a substatial inheritance). There are other ways to to the destination of financial security than levering up and being invested long-term, other ways that let you sleep at night… more education leading to career progression, taking another job, starting a business, more savings, investing in individual stocks, real-estate, commodities (sans leverage thank you). There is no magic bullet [such as leverage] to building financial security and no easy solution – the ethos of this blog speaks to that journey and discipline required to actually get there.

    To BenE – if you don’t trust your financial planner get a new one. They’re really not all bad and just because they recommend funds rather than index stocks or ‘safe bonds’ doesn’t make them untrustworthy. It’s worth noting that ‘safe bonds’ currenty have negative real returns.

    To Ed – those guys that live in $1 million dollar houses with $20k of income are simply living in houses that are too big – nothing wrong with sizing down to free up some capital into income – they’re not looking so bad then.

  8. Emilio on October 31, 2012 at 2:21 pm

    Hi Ed,

    How do YOU make money by having your clients invest in the stock market?
    Do you charge by transaction, every time they buy or sell, or do you work on a monthly fee basis?

    I would like te replicate your business model, on my way to building a huge nest egg. I would rather have somebody else take all the risk, and get paid on either side of a transaction.

    Thanks in advance

  9. Ryan on October 31, 2012 at 2:35 pm


    Can you please explain why you think “All-Star fund managers” are better than low cost index investments? The SPIVA Report is pretty hard to refute. 97% or mutuals over the past 5 year have lost out to their index and the other 3% probably just got lucky.

  10. Ed Rempel on October 31, 2012 at 3:17 pm

    Hi Greg & Ryan,

    The way I align my interests with my clients is that I have 100% of my money invested in exactly the same mutual funds that I recommend for my clients (in the same risk category). This is also true of every member of my team.

    This is not really the point of this article. The point is that most people need a solid investment strategy that does not leave you overly conservative in just bonds and GICs if they want any hope of becoming financially secure.

    I have a strategy that I am confident in. I can tell you that I personally have never – and expect to never – own any ETF or index investment of any type. I think they are fine for most people, but every fund manager I am invested with has beaten his index over many years and his career, and I believe this results from skill.

    A far more in-depth study on the index vs. active management issue is discussed here: .

    This does not guarantee I am right, but I do sincerely believe it, which is why I personally have all my investments with these fund managers.


  11. Badcaleb on October 31, 2012 at 9:25 pm

    Ed. Can you give an example of a manager who has beaten the tsxcomp or sp500 over many years? I have heard even some big money managers who recommend index funds/efts for the average investor. Thanks.

  12. SST on October 31, 2012 at 8:36 pm

    @Ed: “My point is that financial security comes from having a large portfolio, say $1 million or more. Most Canadians are scared to have $1 million in the stock market and will never get anywhere close…”

    You are correct, Ed.

    Currently, less than 1% of Canadians have $1,000,000 in investable assets. This has been true for a very, very long time.

    If the trend continues, at the height of Boomer retirement, ~2% of Canadians will have $1,000,000 in investable assets. That percentage drops after that point in time (ie. Boomers start dying).

    Seems obvious that giving money to the stock market and/or financial “professionals” is not going to result in that million dollar “huge nest egg”, no matter how long term.

    Most people SHOULD be scared to have their money in the stock market (haven’t forgotten about LIBOR, have you?).

    For example, this:

    Real liquidity is now down to 96%. And that’s just one which was made public. Whose to say true liquidity — that is actual non-computer beings BUYING; these HFT bots don’t buy, by the way — isn’t 74% or 41% or even less?

    The public equity markets — both mechanisms and participants — have been deeply and substantially compromised. Look else where for financial security.

    Of course these are only analysis of facts, anything can happen in theory.

  13. uptoolate on November 1, 2012 at 12:31 am

    ‘every fund manager I am invested with has beaten his index over many years and his career’

    Please Ed give us a break. I think that I will take my chances with Jack Bogle and Bill Bernstein. I totally agree with Greg and other sentiments expressed above. This kind of content certainly lowers my opinion of the MDJ.

  14. Greg on November 1, 2012 at 1:06 am

    Hi Frugal Trader and Ed,

    Thanks for responding to my somewhat harsh comment.

    Even though it’s not a sponsored post, it sure is very much a promotion for Ed’s business.

    Beyond the basic investing advice about saving and making long term investments in higher risk assets for more return, I understand this post and FT to be proponents of leveraging via the Smith Manoeuvre (contrary to what FT says in #2 about paying down debt first).

    Ed, I believe you when you say you are sincerely convinced of your investing approach and back it up by investing in the same funds as your clients. I’d be even more convinced if you confirmed that you invest under exactly the same conditions (same management expenses, no discounts) as your clients with similar sized asset bases.

    As for picking all-star managers and having read about active share, I’m still not convinced. Can you provide some data to back that up? Who are your all-star fund managers and what are their long term returns above the indexes and net of fees? Are their betas close to the markets they beat? And what are their excess returns and betas in the time that you have invested with them?


  15. Paul T on November 1, 2012 at 8:36 am


    I’d like to see what those fees are as well, and have a true comparison with an index ETF net of fees. And a track record of years, not months or quarters.

    That’s the TRUE test whether any financial planner is worth their salt.

  16. Sarlock on November 1, 2012 at 12:22 pm

    *Person A: With no mortgage or.
    *Person B: With a $200,000 mortgage and $1 million in investments. That’s what real financial security is.

    That’s not even close to an honest comparison. “Real financial security” is having $800,000 more in net worth than the other scenario. Whether the mortgage is paid off or not is irrelevant in your comparison. A better comparison is no mortgage vs. $200,000 mortgage+$200,000 investments. Both still $0 net worth. That would be a worthwhile discussion on the difference between the two. (In my experience, though, most people will spend the $200,000 and be $200,000 in debt…)

    And someone making $80,000 per year will never achieve $1,000,000 in investments (in today’s dollars). Even if they manage to save $20,000 per year (very unlikely) and can beat inflation by 2% per year, it would still take them 36 years to save up $1,000,000.

    And I do agree with other posters… this story reeks of “advertising for Ed (ED?)” under the loose disguise of actually trying to be helpful. Then again, the general content of this blog has detiorated significantly over the past year or more.

  17. nobleea on November 1, 2012 at 1:15 pm

    I agree that the million dollar vs 200K comparison was disingenuous.

    I think the Chou funds have beaten the index, consistently for 15 years or more. Not very well advertised and not very large.

  18. Andrew Spencer on November 1, 2012 at 2:25 pm

    Hello Ed,

    I agree with your main argument in this post, mainly that financial security comes from being liquid. But I think we disagree on how that comes about.

    Paying down debt and building up savings and investments shouldn’t be mutually exclusive. In fact, I would argue that financial security hinges on both. The key to financial planning is to figure out the right balance between your needs today and your needs tomorrow…its as simple as deciding what you value now and then saving the rest for the future. So long as those investments at least keep up with inflation (net of taxes and fees), then you are better off by saving than by not. If those savings generate a return that is greater than inflation, then you’ve done quite well for yourself.

    Out of curiousity though…what is your fee structure when selling mutual funds?do you use deferred sales charges (DSC)?

  19. khai on November 1, 2012 at 5:19 pm

    I don’t see any problem with this post except the content being too general. Most of us here have some idea about investing and know, whether we need (to pay) a financial adviser or not. So I don’t mind Ed’s “branded” video.

    As for managers vs. index again, everyone is entitled to his own opinion. I don’t agree on everything with Ed, but have to admit, that he many times brings interesting ideas and points of view to the discussion table.

    I still like the blog very much, although agree with recently lowered value of the content. But I don’t think this article is one of those which bring it down. (example of recent useless articles can be the one about unions or another about benefits…)

  20. Ed Rempel on November 1, 2012 at 6:09 pm

    Hi BenE and Sarlock,

    The question comparing the mortgage-free person to the one with a large nest egg is meant as a concept question. It is very common for Canadians to believe that being debt-free = financial security, rather than understanding that a large nest egg = financial security.

    Making the 2 options equal is not the issue. If you think that financial security comes from paying off debt and conservative investments, your nest egg will be small and your net worth will be almost entirely your home.

    However, once people realize that the nest egg is what provides financial security, they tend to invest much more and more effectively, which tends to give them a much higher net worth over time.

    That is why I did not make the 2 choices equal. It is a concept question. hat What gives you financial security?


  21. Ed Rempel on November 1, 2012 at 6:54 pm

    Hi Greg & badcaleb,

    I am very open on MDJ about anything, except I prefer not to reveal my specific fund managers. There are also compliance reasons for doing this, since it could be interpreted as recommending the fund manager to all readers.

    There are quite a few fund managers that beat the index over their careers, though. Our entire investment process is trying to identify them. I’m arguably not really an investor – I am an evaluator of investors.

    I don’t try to pick sectors, countries, or trends. I just study the fund managers and different methods and styles of investing and try to figure out who the best investors are.

    I am always surprised how many people believe nobody can beat the market. The “Efficient Market Theory” has been proved false and is not really believed by any finance professors today. In every field, there are exceptional people. Investing is no different. Identifying them can be complex, though.

    There are quite a few fund managers that have beaten the index over their career, though, and you can find them if you search for them. One of the fund managers we used to use until he passed away was Peter Cundill. He managed the Cundill Value Fund for 35 years with a return of 12.8%/year vs. the MSCI World index of 10.7%/year. $10,000 invested with him at the end of 1974 would have grown to $843,392 vs. $427,458 in the index.

    Note this is after all fees – including paying a financial planner for advice.

    His 15-year beta was .68% and he only lost money 6 years of 36, so he was about 1/3 less risky than the index.

    Just to give you an idea of how many exceptional fund managers there are, here is an independent web site that tracks a few: .

    The studies by the index industry are generally very basic. Nearly all even include all index funds in their under-performing fund category and they make no attempt to identify which fund managers are actually trying to beat the index. Most mutual funds underperform because they are “closet indexers” (funds that claim to be managed but are quite similar to the index), because it is generally much easier to sell a closet index fund to investors. However, they are not really trying to beat the index.

    The Active Share article is far more in-depth and did conclude that fund managers that have a high Active Share, which means their holdings are 80% or more different from the index, the average fund manager beats the index and this outperformance tends to persist.

    The other advantage of investing with top fund managers is that they can make the allocation decision much more effectively on a bottom-up basis. Index investors have to choose which index or ETF to invest in, which is a top-down allocation decision. Studies show investors tend to be very bad at investing with top-down allocation decisions and usually choose the areas that have done well recently. The Active Share study even showed that professional fund managers generally do not add value when they make top-down allocations, and hardly any of our fund managers use that type of strategy.

    With a top fund manager, you can invest with a global equity fund manager and he will make all the allocation decisions much more effective bottom-up, based on where he finds the companies with the best value.

    Investing with ETFs or indexes is fine for most people. However I have never bought one and am far more comfortable today with my All Star Fund Managers.

    I am just off to the Argos vs. Ti-Cats game. I’ll post tomorrow about the fee structures.


  22. SST on November 1, 2012 at 8:50 pm

    I see the issue of facts was skirted once again.

    With only 1% of all Canadians holding $1,000,000 in investable assets — that is, Ed’s proclaimed “huge nest egg” ($1.25 million in his example, #3) — and with decade after decade of investors giving their money to financial “professionals”, how come more people don’t have a million dollars? Surely the other 99% of us aren’t that scared to have a million dollars in stocks.

    Shouldn’t there be more than 2% of Boomers retiring as millionaires, they have had a “long term” investment span as well as the Greatest Bull Market of All Time in which to pad their wealth.

    What are the financial “experts”, and financial industry as a whole, doing so wrong as to prevent the other 99% of Canadians from achieving the $1,000,000 mark?

  23. trevor on November 2, 2012 at 12:05 am

    Gotta agree with most of the people here. Don’t like the video posts. Not that I dislike Ed personally, but it just doesn’t seem to fit the vibe of mdj.

    That said, I FULLY plan on having at least a $1-million (indexed to inflation) when I retire in 28-33 years. All on a gross family income of about $60,000. I also plan on paying for most of my two children’s education.

    No household debt IS A HUGE PART of this plan.

    The house will be paid off before I turn 39 (7 more years). The mortgage payment moves to the kids RESP for 4 years.

    At 43 years old the mortgage payment gets pushed to the retirement, add in the value of my house over the next 33 years,(assumed to match inflation) add the work DC pension and TAADAA! at 65 years old I’ll have the $1-million nest egg.

    All I need to do is index or select a nice mix of blue chip dividend stocks with a smattering of bonds and GICS, make about 6% a year and I’m set to go.

  24. Goldberg on November 2, 2012 at 11:26 am

    To get $1,000,000 portfolio from median incomes means you’ll be 65 years old and not have lived a day of your life.

    People trade health for money then trade money for health…

    You will not need savings or income after you are 75 years of age. Most people don’t have the energy to do crazy “expensive” things. Especially if they never had an expensive lifestyle before.

    So you will only have 10 years of travel and “expensive” living. What do you need $1 million for?

    At 65-67, CPP and OAS will provide you with about $20,000 for you and your spouse. You need an extra $20,000 to $50,000 for ten years. Therefore, $500,000 is already too much.

    If you need more money then provided by CPP and OAS after you are 75 years old, then take equity in your home (or a reverse-mortgage)…

    Nobody needs a huge nest egg…

  25. Ed Rempel on November 2, 2012 at 2:02 pm

    Hi Al,

    Yes, you have the main take-away message right – you can’t really become financially secure without taking a certain amount of risk.

    You are right that leverage is something we believe in for people with the right temperament and long term outlook. It is not part of this article, but it can be an effective way to boost returns. It magnifies gains and magnifies losses by a lot, so it can be a far more reliable way to get higher returns without investing in very risky investments.

    You are right that people with a $1 million house that are living below the poverty line could just downsize. Our experience is that most seniors are very comfortable in their homes and don’t want to downsize.

    What we see much more commonly in the Toronto area is seniors living in $500,000 paid-off homes that are living below the poverty line. The issue here is that downsizing is often not worth it. If you sell a 2,500 sq.ft. house and buy one at half that size, 1,250 sq ft., you will probably clear less than $100,000. That is a huge cut in lifestyle for not much money.

    In the Toronto area, unless you are willing to leave the city, down-sizing is usually not worth doing.


  26. Ed Rempel on November 2, 2012 at 2:51 pm

    Hi Greg & Paul,

    Regarding your question about the funds we all invest in, everyone on our team invests in exactly the same fund managers and funds that we recommend for our clients – with the same fees.

    We think this is an important point of integrity that aligns our interests with our clients. It does not guarantee that we have the best investments, but it does show we sincerely believe we are recommending the best ones. Essentially, we study fund managers to identify the ones that we would want to invest with ourselves, and those are the ones we recommend.

    I personally pay the same MERs as everyone else except for 2 things:

    1. Institutional pricing – Most of my personal investments have lower fees based on institutional pricing, which is typically about .3% lower than regular MERs. This is available to anyone with the required minimum investment. The amounts that need to be invested are not that high. Depending on the company, they are $100,000 per fund per account or $250,000 in all accounts in your family with that fund company.

    2. Advisor portion of the MER – The MER of most funds includes 1% for the advisor. Since I am the advisor, I can buy a version without this 1%. This would also be available to anyone in a Fee-For-Service account, but for any clients, we would have to charge them an advisor fee.

    In short, we all buy the same version as we recommend for our clients. I can personally avoid the advisor fee, but the only other discounts would be available to anyone with the required minimum investments.


  27. JStyLeZ on November 2, 2012 at 4:30 pm

    The word ‘security’ infers safety, guarantee, protection. Investing in the stock market offers very little of that unless you properly hedge(this may be an added value fund managers can provide).

    The journey to the huge nest egg can have setbacks and downfalls. Without adequate safeguards both in your personal and financial life, you do not have ‘security’.

    Having a huge nest egg should be dubbed financial independence/success, not necessarily ‘security’.

  28. BenE on November 2, 2012 at 4:39 pm

    Ok I like this last post. It’s almost honest. We get the fees of the advisor which are 1%.

    The only thing we need to calculate now is how much this fee amounts to.

    Let’s say I want to spend 30k to 40k a year when I retire and retire not too late (early 60s) I will need about one million dollars saved. If I can get 4% return on my investment, I will need to save about $1450/month for 30 years.

    Let’s see what happens if I give 1% to my adviser. Using a savings calculator I find that with 1% taken out and thus a 3% return I will end up with 844000 instead of a million. The advisor pockets the rest. The price for the advice is thus $155 000.

    The fee will be roughly around this value whether the advisor beats the market or not, these advisors usually offer no guarantee and don’t give back the $100 000 or more they made off of you if they didn’t get you returns above market. Research shows they usually don’t beat the market. This is especially true nowadays where they need to beat sophisticated high frequency computers that can process much more data much quicker than humans.

    Is your advisor worth in the hundreds of thousands of dollars? This is what they charge you.

    Here is the savings calculator I used which can help you check my numbers or modify them for your situation:

  29. Ed Rempel on November 2, 2012 at 5:04 pm

    Hi Paul,

    To do a true comparison of ETFs with mutual funds net of fees, you should look at the F class mutual fund or adjust for the advisor portion of the fee.

    There has been a lot of question about the high cost of mutual fund MERs in Canada, but the main reason is that advisor compensation is included, which it generally is not in the US.

    For example, if a mutual fund has an MER of 2.5%, the figure consists of:

    Operation costs & HST .5%
    Fund manager fee 1%
    Advisor fee 1%
    Total MER 2.5%

    For an ETF, the fee may be .2%-.5%, which is only the operation costs. There is no amount for the fund manager or advisor.

    In our situation, if we used a low cost index product for a client, we could use the TD e-series in a Fee-For-Service account. The cost would be MERs of our fee in the account of 1%, so the client would make the index return less 1.3%-1.5%.

    If we invest with mutual funds, we choose the best fund managers and would really only need to do better than the index return -1.3% for our client to be ahead of the low cost index products. However, we believe our fund managers can make more than the index itself, not just more than an index fund or ETF.

    Is it worth it to pay 1% for the fund manager? That of course depends on the stock-picking ability and investment strategy of the fund manager.

    Is it worth it to pay 1% for the financial planner? That of course depends on the quality of the advice and how comprehensive it is.

    From our experience, we find that our clients benefit from our advice even more than from our investments. Without actually experiencing comprehensive advice, we find most people don’t fully understand the benefits.

    The fact that they have a written plan and know exactly what their goals are and what they need to do to achieve them, leads to far better choices of what to do with their money.

    They know line-by-line what their retirement lifestyle will be and when they will retire, they use the most effective tax strategies for their situation, they know what type of investment vehicle is most tax-efficient in their situation, they know exactly what they can afford, where their investment dollars will come from, they don’t waste money on expensive insurance or mortgages, they know how all their other goals will be achieved, they don’t make the common financial mistakes most people do, and they also know when they have saved enough and can spend without feeling guilty.

    The biggest part of this benefit is that they invest more (and know where the money will come from), that they stick to their plan and don’t keep changing it, that their tax is minimized, and that they avoid common mistakes.

    Financial planners are supposed to provide all of this comprehensive planning in a written plan, plus recommend the best, appropriate investments.

    My point is that when you compare the returns after fees of mutual funds vs. ETFs, you are comparing investments that compensate an advisor with investments that don’t.

    In our case, we try to pay for ourselves. Our view is that if our All Star Fund Managers continue to beat their indexes, then they have actually paid for themselves and for our financial advice. Our clients do not have to pay us separately for our advice and yet they will have done better than with an index product.


  30. Ed Rempel on November 2, 2012 at 5:39 pm

    Hi Andrew,

    To answer your question, we use deferred sales charge (DSC) or fee-based accounts, whichever makes the most sense.

    Since we do a lot of planning up front (comprehensive written plan), for smaller accounts DSC is more effective, since we do not have to charge the client anything directly. If we started fee-based with smaller accounts, then we would need to charge separately for the planning.

    Once the account grows, we convert to the fee-based account and then to institutional pricing. Depending on how many accounts you have and which specific companies we invest with, the institutional pricing works with a total portfolio starting somewhere between $500,000 to $1 million.

    There is a lot of misunderstanding about these 3 options:

    1. Fee-based: is not as beneficial as most people think. Most fund companies have an F class version of their funds, which excludes the advisor compensation. The MER is generally about 1% lower. The advisor then charges a 1% fee and you are paying a similar total fee – except that there is HST on the advisor 1%. Looking at this company-by-company, the total fees with fee-based accounts, including HST is usually about the same, but in some cases slightly higher or slightly lower than the regular MER of the fund.

    The advantage of fee-based is that the advisor fee is tax deductible if you are in a non-registered account. This usually makes no difference with RRSP accounts. However, the MER is applied against taxable investment income, so you usually get the most or all of the tax savings anyway (depending on how tax-efficient the fund is).

    In short, fee-based accounts are generally somewhat of a benefit for non-registered accounts.

    2. DSC – is not necessarily a bad thing. The deferred charge is usually “the fee you don’t pay”. If you stay invested longer term (usually 6-7 years minimum), you don’t pay this fee. The MER is usually exactly the same, regardless of the purchase option for the fund. Even most “no load” funds have MERs similar to DSC funds, so there are no actual savings if you stay invested.

    DSC does not necessarily restrict your ability to change investments either. You can switch within the fund company generally for no fee. (We don’t charge one.) In our case, if we recommend changing a fund and moving it to a different fund manager that is with a different fund company, we rebate the DSC fee to our clients so this does not cost them anything.

    In practice, there is an advantage of DSC in that it tends to encourage people to stay invested, especially when the market are down.

    In short, DSC fees generally don’t cost anything for long term investors.

    3. Institutional pricing – Few people are aware how this works or even that it exists, but once your accounts or the specific fund reaches the required minimums, you can invest in lower fee versions that usually save about .3%. In addition, in most cases the entire cost is tax deductible every year.

    For example, instead of having a 2.5% MER paid within the fund, you have a 0% MER but 2.2% of your holdings are sold to pay fees each year, which is generally tax deductible (depending on a couple factors) in a non-registered account. In some cases, you can also use your non-registered investments to pay the fees for your RRSP investments so they also become tax deductible.

    In short, institutional pricing can be a significant benefit, especially for non-registered accounts, but also for registered accounts.

    Does that answer your question, Andrew?


  31. Ed Rempel on November 2, 2012 at 5:51 pm

    Hi Khai,

    Thanks for the support. It looks like I need it on this thread. :)

    I do agree with you that this article/video is too general. Videos are generally 2-5 minutes, which is really not enough time to adequately explain most financial issues.

    Clearly, quite a few of the points on the video required further explanation. I was thinking of using video mainly as a discussion starter, and possibly something that the financially interested readers on MDJ can show to their on-financially interested spouses.


  32. SST on November 2, 2012 at 9:09 pm


    A lot of work doing that much dodging!

    Ed, you give the example of an average family needing $1.25 million in investable assets at retirement in order to continue their current lifestyle.

    Why would you use this when barely 1% of Canadians have $1,000,000+ in investable assets? Ultimately unrealistic.

    With the current average savings rate @~3.5% (remember, ‘savings rate’ is defined as savings from after-tax income), that would give the average household ~$2,400 per year of savings.

    To reach that golden $1.25 million mark, said average family would have to net (after all costs and inflation) an average 12.5% annual return for 45 years straight (assuming age 20 for a starting point).

    We’ve had 40+ years of the financial industry and its “experts/professionals” selling the general public the Million Dollar Retirement Dream.

    Thus far they have a 99% failure rate.
    (As well as almost zero accountability.)

    Why are they allowed to continue?

    Perhaps a more proactive question would be why do you, the customer, continue to give your money to the financial industry?

    Of course the financial “experts” will blame their lack of results on the customer, giving an absolutely inane excuse such as we are “too scared” to have $1,000,000 in stocks.

    Theories and examples and past performance etc. et al are great advertising tools; factual data portrays a completely different picture.

    Have a great weekend!

  33. Ed Rempel on November 3, 2012 at 5:05 pm

    Hi Goldberg,

    We actually find that once people reach their late 70s or early 80s, they are thinking a lot about whether or not to move to a retirement home and whether or not they can afford it.

    If they do go to a retirement home, their expenses may be significantly higher than when they first retired.

    Whether or not you need investments after age 75 depends entirely on the lifestyle you want to live. From our experience, we find that people that have enough money tend to remain much more active than those that have to be very careful with every dollar.

    Have you ever tried to live on $20,000/year? When we have a retired couple that is older, staying home most of the time, living in a paid-off home with one car, here is typically their lifestyle:

    Property taxes $4,000
    Utilities 7,000
    House & car Insurance 2,500
    Car purchase 1,500
    Food & drugstore 7,000
    Clothing 500
    Car gas & repairs 3,500
    Medical 2,000
    Spending money 5,000 ($100/week)
    Gifts 1,000
    Entertainment 2,500
    Home maintenance 2,000
    Vacations 3,000
    Miscellaneous 500

    Total Expenses $42,000

    Income tax 2,000

    Income Required $44,000

    If they rent, the home costs would be a bit higher.

    This is a relatively modest lifestyle. Yes, people could live on less and they will eventually get rid of the car.

    Most Canadians today under age 65 are already accustomed to spending this much or more. Most seniors generally want to maintain the lifestyle they had before, less the mortgage and kids costs, and then usually add more for travel and entertainment.

    When we plan retirements, we don’t usually assume a significant reduction in lifestyle at age 75 or 80. How would we know that? If we plan for it and the client stays healthy then we would be short of money. Also, if they move to a retirement home or have higher medical costs, their expenses may go up.

    It is rare for a 40-year-old, for example, to say that when they reach 75, they will drastically cut their lifestyle.

    They could sell their home, but our experience is that few seniors want to sell their home and rent, unless they are moving to a retirement home.

    If they get $20,000 from the government, then they need $25,000/year increasing by inflation (say 3%) for 20-25 years (age 75-100). If they invest in a balanced portfolio and average 5%/year, then they will need about $450,000 when they are age 75.

    Note that this is all of this is in today’s dollars. If you are 50 today and planning for age 75, with 3% inflation, the cost of living would double by then, so all these figures should be double.

    Also, an actual retirement plan would typically start at age 60 or 65, not at age 75.

    This is, of course, different for every couple and you can change any of the assumptions.

    We have helped thousands of Canadians plan for their retirement. They biggest surprise for most is that the nest egg required to support a basic lifestyle is usually much higher than most people think.

    Having $1 million 25 years from now, adjusted for inflation, would provide you income of about $25-30,000/year of today’s dollars in addition to your government pensions. That is certainly not a lavish lifestyle.


  34. Andrew Spencer on November 4, 2012 at 12:52 am

    Ed…thanks for the reply. That answered my question.

    However, I’d like to summarize your post to the rest of the readers of this blog.

    1) You advise your clients to borrow against the equity in their homes to invest in the stock market.

    2) You sell them mutual funds through a deferred sales charge (DSC) that gives you an up front 5% commission on the total amount invested.

    3) You also collect the 1% per year trailing fee.

    4) If your client ever gets his account to a certain point (let’s say $500k or more), then you put them on a fee structure by which you charge by the hour.

    5) The above mentioned hourly wage is collected in addition to the 1% trailing fee that you continue to collect.

    6) The 2.5% MER (or higher) that your “all star” mutual funds charge means that the fund manager has to get a return of 2.5% APR (compounded daily) just for your clients to break even.

  35. Andrew Spencer on November 4, 2012 at 1:04 am

    Now for an example:

    I attend one of your seminars and end up convinced that I need a huge nest egg for financial security. This has happened because I am similar to my fellow Canadians in that I don’t understand the first thing about financial security or retirement. I then talk with one of your advisers in person and agree to give you a shot.

    During a subsequent four hour session you convince me that stocks are 100% guaranteed in the long run and I need to take out a HELOC against my home so that I can obtain financial security thru you. So I go see my local banker and pull whatever I can from my home equity and invest it in your mutual funds thru a DSC. There’s also potenial here that you (or an affiliate that you can recommend) is giving out the loans through your “mortgage referral service.”

    You collect a 6% commission in the first year after the money is invested with the DSC,. Every year as I pay down my mortgage I increase my HELOC (on your insistence) and invest the money thru you. Its possible you’ve also convinced me to break my current traditional mortgage in order to obtain a readvanceable mortgage.

    Each time you take your up front commission and you always collect your trailing fees. If the stock market doesn’t crashed, I don’t lose my job or my health, interest rates don’t spike, or any number of other bad (but possible) things happen to me then I might actually make it to retirement.

    Along the way, you’ll have started charging me hourly rates just for your “advice”. This is because there’s no more money to be made from me on up front commissions.

    Now I’ve read all your other posts on this blog as well as most of your responses to people who’ve questioned your ethic. And I can see right through you. Everything you’re doing is completely legal…and maybe in your world it’s also moral or ethical. But deep down you know just as much as me that you’re no better than a snake oil salesmen. You are what is wrong with the financial services industry in Canada. I’ve never been a big fan of big brother telling me who or what I can invest in….but there are times I wish the regulatory agencies would step in and put an end to this nonesense.

    The foundation to retirement (any retirment) is being debt free…that’s mortgage debt, student debt, and consumer debt. A leveraged portfolio is fine so long as the returns pay off the interest and you’re not digging into principal just to make ends meet.

    But what you’re selling is something else completely. And for that your customers need to give their heads a shake.


  36. SST on November 4, 2012 at 1:43 am

    @Ed (#33): “We actually find that once people reach their late 70s or early 80s, they are thinking a lot about whether or not to move to a retirement home and whether or not they can afford it.”

    Wait a second…why wouldn’t they be able to afford it?

    If someone is 80 years old (I’ll use 2010 for ease of example), that would mean entering the work force sometime around 1950 — the start of the Greatest Era of Prosperity in North America — and retiring in 1995 at age 65 — riding the tsunami of the Greatest Bull Market Ever.

    Using all average stats, said new senior would have only to start buying the S&P 500 with $10 per month at age 20 and $180 per month at age 64 in order to hit the $1,000,000 nest egg in time for retirement. Completely feasible. Very modest and very average.
    (This example excludes all dividends, fees, taxes, inflation, and the nagging FACT that the S&P 500 index as a whole could not be bought by the average citizen until the mid 1970’s.)

    Since retiring in 1995, the now octogenarian has seen their S&P 500 nest egg remain at that million dollar mark (1995-2012; assuming 3% inflation, 4% withdraw rate).

    But…but…only 0.6%* of Canadian citizens (age 15+) have $1,000,000 or more in investable assets!
    (Some well respected reports put average investable assets at $175,000 per household, or less than $88,000 per person, with equities making up 52% of these assets.)

    Ratio applied with age equality (which it is NOT in real life), that means there is a mere 4,300 eighty year old millionaire. Assuming ALL people born in 1930 are still alive (because when using theories we can do whatever we like, right, Ed?), millionaires among them number just over 3%.

    Now we come to the reality part.

    Shouldn’t there be a substantially far, far greater number of these people in “their late 70s or early 80s” who have that huge million dollar nest egg? After all, they have had lived through immensely prosperous times and have had the longest long-term possible.

    Why is it that after 60 years of investing in the stock market and financial industry, and employing “help” from financial “experts/professionals”, are there not more elderly millionaires?

    Even under the most optimal economic circumstances — longest time frame, biggest booms, etc. — the financial industry has, at best, a 97% FAILURE rate when it comes to fulfilling their million dollar retirement marketing scheme.

    Again, Ed, your numbers are horrific when it comes to real life. That is, unless, you can show us the millionaires…

    *After new data research I’ve had to downgrade my millionaires-among-us figures from 1% to 0.6%.

    p.s. — some reports mention millionaire population in Canada will grow ~35% by 2020. That’s great. It gives us a projected 250,000 millionaires out of a projected 37,000,000 population…or 0.6%…just the same as it is today. You figure it out.

  37. Ed Rempel on November 4, 2012 at 8:56 pm

    Hi JStyLeZ (#27),

    Thanks for the insightful comment. There is a lot of truth to your post, that a large nest egg can provide financial independence/freedom more than security.

    We ask all our clients about their values related to money and the most common answers are security and freedom, with independence not far behind.

    People that are looking for freedom/independence are often more aggressive in their financial plans and with their investments than people that are looking for security.

    From talking with many people in each of these groups, I think what I would tell you is that these are emotions and different people experience them differently.

    After creating the framework for a financial plan together with clients, we go back to see whether the plan gives the client the emotional value they are looking for.

    For example, having a plan that works can give clients a feeling of confidence that their retirement may be okay, and that confidence may feel like financial security. This is especially true because most people have never had a retirement plan done and inside were worried that they probably would not have enough.

    You are right that many people experience the stock market as the opposite of security. But if you ask them who they know that is the most secure, they usually name either someone with a large pension or someone that has lots of money (which is usually invested).

    The stock market is also just one risk level. There are strong growth fund managers and very defensive value fund managers. Clients looking for security can still have a high proportion of equities, perhaps by focusing on the more conservative/consistent fund managers.

    In practice, this is more an art than a science. In most couples, one person is more security-focused and one person is more focused on freedom or independence or self-confidence. If the husband is looking for one emotional value and his wife is looking for the opposite feeling, we still need to develop a plan for them where the numbers work, plus both feel that it provides the value they are looking for.


  38. Ed Rempel on November 4, 2012 at 10:04 pm

    Hi JStyLeZ (#27),

    Correction to the last post. It should read:

    “The stock market is also NOT just one risk level.”


  39. Ed Rempel on November 4, 2012 at 10:14 pm

    Hi BenE,

    I wish your post was true. :) You pay the advisor $155,000?

    You calculated the difference in return, which would be like the advisor left his compensation invested in your fund to compound for 30 years. That is how you get $155,000. In your example, the amount you pay the advisor is far less.

    However, you are correct in how much it could reduce your returns and your net worth IF there is no value to the advisor’s advice.

    The most significant benefit should be the financial planning, followed by the investment selection. That is why it is important to select a financial planner carefully. You don’t need a salesperson marketing something to you that makes you feel comfortable.

    If you are paying 1%/year, you need real financial planning and a solid investment strategy.


  40. Ed Rempel on November 4, 2012 at 10:56 pm

    Hi Andrew,

    I think you have me mistaken for somebody else. Have you had a bad experience?

    The main service we provide is comprehensive financial planning. This is based on the 6-step process prescribed in the Certified Financial Planner program.

    We sit down with each client and help them figure out what they want in life (conceptually and emotionally) and then work out their goals very specifically (line-by-line). We help them work out what they need to do to achieve their life goals.

    This is very individual for every client. The plan is their plan – not our plan.

    For example, the most significant goal is usually retirement. We help them work out the exact lifestyle they will want (example in #33), we go through all the assumptions involved to make sure they are reasonably conservative, we use an investment return based on their risk level, and we look at how much they can reasonably invest and where the money would come from.

    We help the clients work through each part of this process until we develop a plan that will achieve what they want in their lives and that is reasonably do-able.

    We also look at all their other financial goals, their cash flow and how they use it, how their debts are financed and lower cost options, their emergency fund, the cheapest insurance, an estate plan and any other concerns they have. After doing the planning, we look at investments and what is appropriate, including some basic background education. The stock market is never 100% guaranteed. It does generally produce good returns long term for investors that stay invested, including during down markets.

    After implementing their plan with them, we stay in contact and review the plan fully several times a year to make sure the goal still makes sense, are they on track, what steps are necessary each year, where does the cash come from, we e-file their tax returns and recommend the best use for the refund, and discuss any financial concerns they have.

    All of this is professional planning advice. You seem to think this is a canned sales pitch. I can assure you we have no salespeople. I was an accountant and still follow the same professional approach. All our financial planners are detailed financial/math people.

    We believe in leverage and use various leverage strategies, such as the 7 Smith Manoeuvre strategies, quite a bit, but leverage is only one of many tools. It is only appropriate for more aggressive people wanting to build wealth that have a long term outlook and the temperament to stay invested through market crashes.

    It is certainly not for everyone. It can make an effective contribution to a retirement plan by allowing clients to borrow against their home to invest in addition to using their cash flow.

    Regarding your concern, the regulatory agencies are heavily involved. There are clear guidelines that outline what is appropriate. Our process and investments, especially any leveraged investing must be approved by our dealer and is reviewed by the regulatory agencies.

    You also have a few of the fee details incorrect:

    – The commission is not 6%, it is 5% (if there is one).
    – The trailer fee is usually on .5%. Of the MER, 1% is allocated for the advisor, which is used to pay both the commission and the trailer fee over the years.
    – There is no hourly fee.
    – Larger portfolios can get a lower MER that is tax deductible annually (not an hourly fee.

    This process may or may not be worthwhile in your case, but we find a huge need for this. Most Canadians are not confident in their financial situation, are not able to do comprehensive planning themselves, and are not effective investors.

    It is hard to explain the real benefit of financial planning without experiencing it, but our clients really appreciate our advice – and it is mostly the financial planning advice they appreciate (even more than the tax strategies or investments).


  41. Rob H on November 5, 2012 at 10:56 am

    So basically, it comes down to the usual refrain: “I (think I) have the time, energy, conviction and skills to do it myself so paying a fee to a professional for advice is an evil scourge upon the earth and must be wiped out.” Sorry for the following rant, but I’ve read it so many times that I need to get this off my chest.

    Yes, advisors get paid to advise. Shock! Too much? Maybe yes, maybe no. That’s a market decision, though, and if you think it’s too high, go ahead, do the work yourself. A full financial plan takes time, and it’s not one of those things you want outsourced to India. If you want to do it yourself, go take 4 semesters of night courses and get your CFP.

    How much do planners actually make? Let’s take an example of a planner who will make $2500 DSC on a $50,000 investment. From my experience*, it will take three hours with the client to determine their goals, 10-15 hours to run the numbers and design the plan, and two hours to present the plan and get moving. That’s 15-20 hours, or $125 to $166 an hour. But wait – the dealer gets a cut – I forget exactly how much but 1/4 sounds about right. So we’re down to $93.75 to $125 per hour. Pretty much the same as a garage will charge you to fix your car. Yes, like the garage, the advisor has overhead. Software, office, advertising, assistants… make the list as long as you want.

    So now lets ask the question if planners are robbing the public blind? If you have a choice of whether to use them, then my answer is no. If the price is too high, nobody will pay. Just because you don’t see the value doesn’t mean others will not benefit from the service. The same can be said for all types of advise-based professions – from the highly trained ones like lawyers and accountants down to the “I took a 2 week prelicensing course so I’m da shizzle” real estate agents. If you don’t agree with their prices, do the work yourself or go shopping for a cheaper alternative. Depending on your diligence, you may do a better job than the professional. You may also screw up royally, but that’s your right.

    Haters gonna hate. Keep up the good work, Ed. Not everybody needs your services, but for those that do, the work you do is invaluable.


    *disclaimer: former client AND former employee. Now out of the industry completely as I can make better money elsewhere.

  42. SST on November 5, 2012 at 11:21 am

    Ed: “I can assure you we have no salespeople.”

    Ed: “Building a nest egg probably means you need to invest in the stock market.”

    Don’t kid yourself, Ed, YOU are a salesperson, whether you think it or not. This article/advert is a great example.

    You also try to sell your clients on the stock market because that is how you make money. Unfortunately, that is not how they make money.

    You are not recommending building a nest egg by investing in real estate or physical commodities or even private equity, because YOU don’t get any money from your clients buying from outside your company.

    Here’s something else you constantly try to sell:
    “My point is that financial security comes from having a large portfolio, say $1 million or more.” — Ed

    I just want one answer to one question, Ed: why is the financial industry and its “professionals” unable to fulfill their ‘Million Dollar Retirement’ marketing scheme it’s been hawking for so many years?

    Oh! That’s why! The Get-Out-of-Jail-Free! caveat:
    “Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.” — Ed

    One one hand you try to sell us that “you can invest successfully and safely in the stock market” and then turn around and tell us that our investment might not be successful or safe! Imagine if all industries had a “No Guarantee” policy! Thank goodness we have those strict regulatory agencies!

    FACTS are, Ed, there are incredibly few millionaires in Canada.
    FACTS are, Ed, there are incredibly few millionaires made from the stock market.
    FACTS are, Ed, the financial industry does NOT create millionaires.

    You blame the markets when things go sour — “Mutual funds are not guaranteed” — and you blame the customers when things don’t work out — “They are scared of it”.

    When do you blame yourself and your industry for failing, Ed?

    That is, unless, you can show us the millionaires….

  43. Goldberg on November 5, 2012 at 11:59 am


    Respectfully, I don’t doubt that you provide a great service to people who don’t know anything about money, don’t read about it, and hate to even think about it (ie, most of my neighbors). Someone shows up with credit card debt and some savings invested in 2% savings account, and have no family budget, etc… no doubt you help them.

    However, for those more financially savvy (as most who read financial sites, as this one, might be)… a few of us (myself included) find it hard to believe that your All-Star mutual funds returns will consistently beat the index by more than 2% MER? Actually, 2% above index return would make ETF better since you must pay tax on that 2% extra return.

    My main point is this: The owner of this site (FT) invest in a diversified dividend-based portfolio which he makes public. No advisor fees, no MER, nothing. I do something similar myself. Are you saying that we could earn at least 3.5% more per year, at an equally low risk, if we went with you? (2.5% mutual fund fees + 1% alpha to make it worthwhile = 3.5%)

  44. nobleea on November 5, 2012 at 3:50 pm

    I always thought that in Canada, the returns published by mutual fund companies was inclusive of the MER. Some posters here seem to suggest it is not?

    For example, if you invest yourself in a diversified portfolio of stocks and get 6% return, and a similar mutual fund publishes a return of 6%, it is the same return to you as a client (though the mutual fund actually earned 6%+MER).

  45. Ed Rempel on November 5, 2012 at 8:27 pm

    Hey Rob,

    Thanks for the post and the kind words.


  46. Ed Rempel on November 5, 2012 at 8:40 pm

    Hi Noblea,

    Yes, you are correct. Published mutual fund returns are after the MER. They are the net return to the investor.


  47. SST on November 6, 2012 at 12:18 am

    Thanks for not refuting the facts, Ed.
    Your silence on the matter (as well as towards your detractors) speaks volumes.

  48. Ed Rempel on November 6, 2012 at 3:58 am

    Hi Goldberg (#43),

    That’s a very interesting question.Actually 2. Yes, I believe the top fund managers can outperform their index over time relatively reliably. That is why I invest with them.

    First, I need to be clear on the threshold and explain the level of consistency. If our fund managers make the same return as the index (or the same as you would have earned otherwise), then you are ahead because the fund has also paid the full cost of financial planning advice.

    That means that you have a custom, comprehensive, written plan created for you, you have on-going advice on any financial issue, we e-file your tax returns, etc. I think you would find in practice that benefit to be much more significant than you may realize.

    Also, ETFs do not get the index return. They always make less than the index by .2%-.5% or more, so if our fund managers make the same as the index, we also have a higher return.

    You mentioned “consistently” beating the index. “Consistently” is a strange word in investing. ETFs do not consistently beat my chequing account.

    The consistency we try to achieve is not to beat the index every year, but to beat the index relatively reliably over long periods of time.

    I study I once saw of the 20 best fund managers in the last 50 years showed that they tended to beat the index about 2 years out of 3. An extreme, but somewhat typical example is Rick Guerin. He had a 19-year career from 1965-83, which is the period of time many articles wrongly call a “secular bear market”, claiming the stock markets were flat. In that period, the S&P500 made 7.8%/year and he made 23.6%/year.

    How consistent was he? He beat the index by 15.8%/year over his career, but he beat the index in only 11 of the 19 years.

    My point is that we try to match or beat the index over time and beat it most of the time, but not nearly every year. The reason for this is that the best fund managers tend to have portfolios very different from the indexes.

    Regarding the fund managers, why is it so difficult to believe that there are people with superior investing skills, just like in any other field?

    Let me start by saying these fund managers do exist. There are quite a few, but they are a relatively small minority. Identifying them does take some effort, since they don’t usually outperform every year and you need to track the fund manager, not the fund. Most are value investors and almost all are bottom-up stock pickers.

    There has been a lot of media coverage about the average fund manager under-performing and about how significant the fees are. However, I am not talking about the average fund manager.

    Averages hide the exceptional. For example, the average Canadian has one breast and one testicle. :)

    We have debated about a proper way to reveal at least some of them, but there are compliance issues. If you doubt they exist, google “Active Share” (the most comprehensive study on this topic), , or read the article “The Superinvestors of Graham and Doddsville”. (It is on my site.)

    So why don’t most fund managers beat the index? In my opinion, the reason is completely different than you may think.

    The reasons commonly given are that you can’t beat the market because it is efficient and because the fund managers ARE the market. I don’t think either of these reasons is true, especially when it comes to the top fund managers.

    The real reason, in my opinion, is because most of the financial industry is focused on marketing investment products.

    Let me explain.

    The idea that nobody can beat the market is based on the belief that it is efficient, which is today nearly unanimously recognized as wrong. “This argument for the efficient markets hypothesis (EMH) represents one of the most remarkable errors in the history of economic thought.” (Shiller)

    When you think about it, it is obvious. The EMH is claims that all stocks are fairly valued at all times by the efficient market. Therefore, bubbles and irrational do not exist. Tech stocks were properly valued when the NASDAQ was over 5,000 and they were also properly valued after falling to 1,300. Further, it claims that irrational pessimism does not exist, such as we saw in March 2009. Of course we all know that bubbles and irrational markets are common.

    The EMH was disproved by behavioural scientists, who have showed that the majority of investors are irrational the majority of the time. (This is, incidentally this same logic flaw applies also to economics.)

    The other argument that fund managers cannot beat the market because they ARE the market is also wrong for the top fund managers. Most top fund managers tend to have very focused portfolios and they are usually very different from the index (high “active share”).

    For example, a top global fund manager has 20 stocks while his index, the MSCI World index has over 6,000. Of his 20 stocks, only 5 are in the index. Clearly, he is not the index.

    The problem with the average fund manager, in my opinion, that most fund companies and fund managers try to create a fund that people will buy, instead of focusing on the best quality investments. We call this “The business of investing vs. the profession of investing”.

    The biggest problem is “closet indexers” – fund managers that claim to be active investors yet hold stocks close to the index. The “Active Share” study found that 30% of US fund managers and 70% of Canadian fund managers are closet indexers. They are not really trying to beat the index. They are trying to be similar to it, which means they cannot earn their fees. Being similar makes investors more comfortable buying their fund and means they do not lose money when nobody else is.

    Top fund managers tend to invest very differently from the index, which is a risk for them because no equity investment strategy works all the time.

    Most fund managers that are employees of a large firm, bank or insurance company also have bosses that want them to own popular stocks and be in popular trends. Again, this tends to attract buyers. Many funds do “window dressing” just before month ends to buy a popular stock (such as Apple or a Canadian bank), which they then sell immediately on the 1st, just so that stock appears in their published top 10.

    The top fund managers tend to have all their own money in their fund, so they won’t just try to mimic an index. The usually have their own investment firm, so they usually don’t have a boss.They have their own philosophy on what is the most effective way to invest.

    That, in my opinion, are the real reasons that most fund managers don’t beat the index.

    Regarding Frugal Trader’s portfolio, he uses mainly indexes for his international and bond investments, but his Smith Manoeuvre non-registered portfolio is mainly Canadian dividend-paying stocks.

    I’m not sure that he is actually trying to outperform the index. You should ask him this, but in my opinion, a leveraged portfolio should often be somewhat more conservative because it is a high risk strategy. By focusing his Smith Manoeuvre portfolio on dividend-paying stocks, I believe FT is targeting a lower risk and more defensive portfolio, and not necessarily trying to beat or even match the index.

    There are 2 articles on MDJ about “All Star Fund Managers” that explain much more about why they outperform and what we look for to identify them. There are also examples, such as Peter Cundill.

    Does that make it easier for you to believe that an All Star Fund Manager could match or beat their index over time, Goldberg?


  49. nobleea on November 6, 2012 at 12:00 pm

    Then if mutual fund returns are after MER, why does everyone spout off that they have to beat the index? I mean, on a gross basis, they do, but comparing the published returns to the index they can be the same and the investor sees no difference. The advisor wins, but it’s the same to the investor.
    There are more than a few mutual funds that have beaten the index (that would be after MER) on a 15, 20 yr time frame.

  50. Paul T on November 6, 2012 at 12:31 pm


    The issue isn’t whether some mutual funds can beat the index.

    The question is: How 15-20 years ago anyone could have picked which mutual fund would have beaten the index over the next 15-20 years. Or to put it in terms of today: how would you go about picking a mutual fund today that will beat the index for the next 15-20 years?

    Based on past performance? Read the disclaimer at the end of Ed’s article. “past performance may not be repeated”

    The only winners are the mutual fund companies taking your money (2-3% at a time), year in and year out irrespective of performance.

  51. Chris on November 6, 2012 at 12:38 pm

    These commenters are funny. A financial planner is a service. A lot of people have no clue about retirement, insurance, tax, estate planning, etc. Obviously, commenters on this site are more likely to be more educated at some of these things and have no need for a financial planner. The others that need assistance go to a planner & pay the fee. If you have no clue how to do something yourself you hire it out or learn it for yourself.

    FYI – there are many, many funds out there that beat their index consistently with less volatiity. If you want to guarantee that you never beat an index, buy an index fund.

  52. Keeping It In Perspective on November 6, 2012 at 1:25 pm

    This post discussion has been skewed to discuss the value of financial planners on the whole. I think some good points have been raised by the readers here who are generally index or dividend oriented in their investment strategy. Goldberg asked Ed if financially savvy people will find value in the additional cost of advice +\- active management.

    Let’s break these down into two discussions:

    1. Cost of advice
    Most readers here are in similar situations where they are employing fairly standard personal finance strategies of debt reduction, living below their means and then passive investing for the long run.

    First I want to point out that we as readers have to acknowledge we are a skewed portion of the overall population who have taken an active interest in becoming financially literate. I think it is absolutely false to make the statement that all financial planners are bad and are all salespeople bottom feeding on society. For anyone here to tell someone who is not financially literate to just go start reading books/blogs and never find a financially planner is giving BAD advice.
    Becoming financially literate may be the superior option, but the reality is the MAJORITY of the population won’t do this and will be financially worse off with no one helping direct their financial future. As a physician, I tell people daily how to prolong and improve their quality of life with simple things and it is a small minority that heed this advice.

    2. Now for financially savvy people there are 3 distinct roles for the cost of advice and the value depends as always on individual circumstances here.

    A) if you are an employee for a company and taxes are deducted at source, then planning becomes fairly simple. Self employed individuals have more planning options and I find personal finance blogs have less good advice here. Through seeking professional advice I have found superior planning options than found through standard blogs and discussion boards. I will acknowledge this has more to do with accounting, but a good financial planner should be aware of tax consequences of investments in my opinion.

    B) Behavioral Finance – this aspect of investing is often overlooked. When someone employs buy and hold index investing for the long term this can lead to excellent results. the problem is that as we get more financially savvy, investors tend to gain confidence in their macroeconomic predictions and change investment patterns based on this.
    As a financially savvy reader, have you never sold/switched any index investments (not including for rebalancing purposes)
    Have you never chased dividend yield and bought a bad company that tanked?
    Have you never held off on purchasing investments or moved to cash when economic doom/gloom is in the news?
    Do you have a small “play” investment account where you try and generate your own alpha via stock picking? Has this account gotten larger than you would want?

    The above may or may not affect you, but having an additional step through a good financial planner instead of direct access to a brokerage account CAN ameliorate some of these poor behavioral investment decisions.

    C) As FT gains net worth and finds his investable assets move above $1 million ( getting close) he will have more complicated personal finance decisions to make.
    He will find that the blogs he reads and researches are limited in their advice for higher net worth individuals. He may find that continuing his current strategies will continue to work, but he will likely suffer from inferior wealth protection and accumulation if his investments remain in largely long stock investments only.
    Alternative asset classes show less volatile superior returns in the long run through improved diversification. These more complicated investment classes require higher due diligence and investment advice has value here.
    Large estate planning and wealth protection is also more complicated and unlikely to be appropriately addressed via personal finance blogs/books. Specialized investment advice adds value here as well.
    I personally think a reasonable portion of financially literate readers will have investable assets greater than $1 million by the 50-60’s (despite what SST thinks) regardless of income level and will have more complex finances when that time comes.

    These may be niche areas, but I believe they may have bearing on a significant portion of the savvy financially literate people here. I am not making a case for or against having a financial planner but acknowledging the total disregard for any paid financial advice is absurd. The value/cost to attribute to this will vary, but certainly financially literate people can have value from fee-based advisors on an intermittent basis.

    It is a no brainer that the average financially illiterate person is better off with a planner to employ basic debt reduction and saving strategies and this applies to the majority of Canadians.

    I will address active management later….

  53. SST on November 6, 2012 at 9:27 pm

    Paul T: “The only winners are the mutual fund companies taking your money (2-3% at a time), year in and year out irrespective of performance.”

    You mean with the big banks and financial industry pulling down record profit after record profit…that their customers aren’t doing the same and reaching millionaire status via investment accounts?

    KIP: “I personally think a reasonable portion of financially literate readers will have investable assets greater than $1 million by the 50-60’s (despite what SST thinks)…”

    What exactly is a “reasonable portion”?
    And exactly what generation are you referring — current 20 year-olds? 45 year-olds? Grade ones?
    As I asked Ed, please, show me the millionaires, especially those created by the stock market.
    He refuses to address the facts, so perhaps you can on his behalf.

    KIP: “As FT gains net worth and finds his investable assets move above $1 million ( getting close)…”


    Investable Asset:
    Financial Assets include cash and bank accounts plus securities and investment accounts that can be readily converted into cash.

    Excluded are illiquid physical assets such as real estate, automobiles, art, jewelry, furniture, collectibles, etc.

    Investable Assets (do not equal) Net Worth

    FTs ‘investable assets’ are somewhere around the $425,000 mark*, a long way from $1,000,000. But, given he has a good 30 years ahead of him, he may just hit that unattainable $1.25 million retirement mark promoted by Ed.

    *This might not be a true figure as more than 30% of his IA are held inside an RRSP, thus to have full access to this cash it will be taxed upon withdrawal. Should this be taken into account? Who knows.

    p.s. — you might want to look up the true definition of “investment” and “speculation” as well.

  54. SST on November 6, 2012 at 9:45 pm

    KIIP: “Alternative asset classes show less volatile superior returns in the long run through improved diversification. These more complicated investment classes require higher due diligence and investment advice has value here.”

    What exactly does this mean???

    There are no “alternative” or “complicated” asset classes.

    These are the ONLY asset classes:

    Cash (and equivalents)
    Real Estate

    Which are the ‘alternative’ ones? The ‘complicated’ ones?

  55. Keeping It In Perspective on November 7, 2012 at 9:46 am

    A reasonable portion implies greater than the absurdly low projection of 1% by you.5-10% of readers that are in their 20-30’s easily attain this mark in their retirement age through consistent savings and compound growth (except possibly the lowest income levels or single earning households)
    If you believe FT won’t have $1 million in investable assets by age 60 then you are demonstrating your lack of basic financial acumen.

    If you look up the formal definition of investable assets it excludes real estate and individual business interests. In the context of the article, Ed did not use the term investable assets in describing having a large nest egg. He can correct me if I am wrong but he is likely implying all forms of investment that can generate growth or income which would not include someone’s primary residence. My personal feeling is owning 4 paid off rental properties each worth $250,000 that generate income should be included as part of your nest egg/net worth.

    Finally your question on what an alternative asset class is quite striking in demonstrating your limited knowledge of types of investments despite your regular sermons on superior personal finance management to MDJ readers.
    An alternative asset class needs to be non market correlated (ie not long market oriented) As mentioned, these become more applicable for higher net worth investors with larger portfolios but can still be accessed by typical investors
    This includes:
    Distressed debt
    Short equity
    Global Macro
    event Driven

    The above would typically be accessed through hedge fund managers of which there are a few that have funds available on stock exchanges that non high net worth investors can access. These do require higher levels of due diligence and therefore are “more complicated”.

    Private Equity is an alternative asset class and can be accessed both on the exchanges or via direct investment in firms.

    Venture capital is also an alternative asset class mainly only accessible by high net worth investors.

    As you can tell these are more complicated strategies that most individual investors do not have the expertise in self managing. I am certainly not advocating these investments for the average investor. However as portfolio size increases, these alternative forms can lead to lower volatility superior returns through diversification compared to the standard stock/bond/real estate portfolio. You can read up on David Swenson’s portfolio management book for details .

    I’ve noticed you have a knack for hijacking threads and steering them off course onto your own personal agenda. I therefore welcome your critical response but will choose not to continue debating financial concepts with you.

  56. Goldberg on November 7, 2012 at 11:01 am

    KIIP’s last post was out of context (and the opposite of keeping things in perspective!!). M&A? Distressed debt? WTF?

    The original article from Ed (and this entire website for that matter) is for people with less than $1million in net worth (or without a huge nest egg). Your post is for how to manage your millions once you’ve achieved it. Wrong website!

    Ed’s article was to advocate priotizing and aiming for a huge nest egg over debt repayment. His audience on this website are people with some debt and some savings wondering should I repay my mortgage early or invest. Ed says save a lot and invest it, and manage debt.

    I hate to tell you this KIIP but SST is right. His list of asset class are realistic for this website. Yours are for the already millionaire websites (and therefore irrelevent and out of perspective!). Try the Wall Street Journal website.

  57. Goldberg on November 7, 2012 at 11:35 am

    As for SST’s request of “show me the millionaires.” Jerry Maguire style… It’s a silly request.

    The stock market is not supposed to make anyone a millionaire. Your savings from your work are. The market is supposed to grow those savings at a better rate than many alternative would, say GICs.

    Ed’s argument is that over a few decades, your savings will 1) still exist and 2) be bigger than they would have been with a GIC. And I would agree with that.

    I disagree with him on the need for a huge nest egg (as SST says, 99.4% do not have a huge nest egg and are not living in the street). Preferable, yes; abselutely required, no. My grand-parents at 80, receive $20,000 from OAS and CPP and another $5000 from a small pension, and live a further $10,000 from savings. They never had a huge nest egg, are comfortable, secure, and happy. As 99.4% may be.

    Yes, you should save and invest as much as you can… And not be house poor… but!! not be life experience poor (so travel!) and not be health poor (so spend more on organic veggies, quality meat, and a gym!)

    And when you reach retirement, if you only have a moderage nest egg (not a huge one) yet have lived well, with good friends and family, exercised and eat well. To me, that’s success. To Ed, you should have aim for a bigger nest egg. But Ed probably works 70-80hrs a week – to each his values and priorities.

    But SST, Ed can’t show you the millionaires because he can’t force people to save more and invest more… he can only advise them to do so… as he is with us on this article… and I’m ignoring that advise. I have organic veggies and grain-fed beef to buy, and those aren’t cheap! Plus I’ll take my daughter to the park rather than doing overtime so I can’t save/invest as much… so no huge nest egg for me…

    So SST, I won’t be in your millionaire club (0.6%) but that’s my fault for not working and saving more; not the stock market or the financial industry!

  58. SST on November 7, 2012 at 11:50 am

    –A reasonable portion implies greater than the absurdly low projection of 1% by you.5-10% of readers that are in their 20-30’s easily attain this mark in their retirement age-

    By this same logic that would also then mean that 5-10% of people who are now “in their retirement age”, and older, should also have $1 million or more in investable assets.

    Where are they?
    Show me the money. That’s all I ask.

    If ALL true millionaires were in the “retirement age” demographic (65-69), they would constitute 11% of said group. This is, however, not the case.

    Sorry if you don’t accept the “absurd” FACTS and wish to make up your own reality. Good luck with that.

    –If you believe FT won’t have $1 million in investable assets by age 60 then you are demonstrating your lack of basic financial acumen.-

    Obviously you didn’t READ my post in which I commented:
    “…given he has a good 30 years ahead of him, he may just hit that unattainable $1.25 million retirement mark promoted by Ed.”

    –My personal feeling is owning 4 paid off rental properties each worth $250,000 that generate income should be included as part of your nest egg/net worth.-

    Personal Residence is NOT considered when calculating investable assets. Rental property is.

    –An alternative asset class needs to be non market correlated (ie not long market oriented) As mentioned, these become more applicable for higher net worth investors with larger portfolios but can still be accessed by typical investors
    This includes:
    Distressed debt
    Short equity
    Global Macro
    event Driven

    The above listed are NOT asset classes.
    Can I call up my broker (no, I don’t have one) and tell him to “Buy 100 shares of Arbitrage!”?
    Can I look up on the “Event Driven” website to see new inventory listings?
    Can I check CME for “Global Macro” prices?

    Give yourself examples of each and you will find they fall under any of these:
    Cash (and equivalents)
    Real Estate

    “Non market correlated” is gibberish. ALL assets have a market.
    “Not long market oriented” is short selling. If you buy anything you are ‘long’, even if it’s day trading.

    –Venture capital is also an alternative asset class mainly only accessible by high net worth investors.-

    Venture capital by definition is “long market orientated”.
    Thanks for the contradiction.

    –I’ve noticed you have a knack for hijacking threads and steering them off course onto your own personal agenda.-

    Would you rather I post an advertisement for my person business under the shady guise of an article? No personal agenda there.
    Or perhaps you would rather I just sit on my hands and whistle Dixie and not confront certain wrongs? Not rocking the boat is always helpful.

    Ed claims that people should invest heavily in stocks (and his services) in order to achieve a “huge nest egg” of $1,000,000 or more; I merely challenged his claim, with force.

    FT has total control over this website, that includes being able to moderate and edit each and every post to his liking. He has in the past edit my postings, as that is his right. Thanks to him for allowing the presentation of facts and demanding answers from the “professionals”.

    Still waiting to see the stock market millionaires…

  59. BenE on November 7, 2012 at 11:56 am

    “My grand-parents at 80, receive […] $5000 from a small pension, and live a further $10,000 from savings.”

    Dude that is a sizeable nest egg. It’s worth almost a half million dollars. Since they also receive an amount that is worth about another half million (if they were to have saved it themselves) from the government, the total savings that were made on their behalf to secure their retirement is about a million dollar.

    That’s not pocket change.

  60. Goldberg on November 7, 2012 at 2:55 pm


    The $10,000 comes mostly from capital, and somewhat from bond returns. It was never above $100,000. Not even close. I’ve been filling their taxes for years. I know…. I don’t know how you got half a million.

    As for the $20,000 from the government, everybody gets it and it that has nothing to do with saving a huge nestegg as discussed by Ed. And is always ignored in their calculation by financial advisor like Ed.

    So yes, it is NOT a huge nest egg, not even close!

  61. BenE on November 7, 2012 at 4:06 pm

    “The $10,000 comes mostly from capital, and somewhat from bond returns. It was never above $100,000.”

    $100,000 is only 10 years worth of $10,000 revenues. You’d have to retire at like 80 and not live more than 90 for this to be enough. Most people want to retire around 60-65 so they need to save closer to $250,000 for each 10,000 of revenues they need.

    Also, government pensions are likely to be reduced in the future since the rising amount of seniors relative to population is making them very costly.

  62. Ed Rempel on November 8, 2012 at 2:10 am

    Hi KIP,

    Thanks for the insightful perspective posts. I do agree with you that people that are not financially savvy usually benefit hugely from good advice, as do people with more complex situations such as the self-employed (especially if their business is a corporation) and those with very large portfolios, and also that some financially savvy people motivated to manage their own finances and investments may not need advice.

    The one comment I would add from seeing the finances of thousands of people is that often the people in the worst financial mess are the ones with some knowledge. A little knowledge can be a bad thing – especially if it leads to overconfidence.

    I often talk with people that say they can manage their own finances, but when I ask what they do, it is often not much more than choosing their own investments. There is little planning, taxes are not optimized, their debts may not be structured effectively, and their investments are mainly the same as what everyone is buying at the time.

    The 2 biggest issues are often planning and behavioural finance. Many people with some financial knowledge have not actually planned their retirement in detail and will end up retiring with a lifestyle much lower than they want. Without doing the retirement planning, they do not even know now that they will end up far short.

    With investments, your point about behavioural finance is right on and I think requires more explanation. People that may otherwise be able to manage their own finances but hat would make significant behavioural finance investing errors would also benefit form advice.

    It is so easy to fall into it. I can admit that even though I have been investing for several decades, I have to constantly guard against making the common mistakes. The human gut is very unreliable in investing.

    We have also found from experience how huge of an effect it can have. If you invest well for 20 years, and then sell once after a major market crash, your return is probably poor. If you buy an investment every year, except don’t buy for some reason the 3 years in 20 after a big crash, then your rate of return is probably 1/3 of what the investment earned.

    For example, the #1 classic investing mistake is selling after a market crash. We had a recent, obvious buying opportunity in March 2009 with irrational pessimism. i published 2 articles at the time: “How to take advantage of the market crash of 2008” and “Irrational Pessimism?”. The market was so obviously oversold. That is exactly what buying opportunities look like. That is the single most important time to be fully invested (or at least as much as other times).

    However, the informal poll of posts on the MDJ article was 23 people were pessimistic and 9 were optimistic.

    My point is that 23 of 32 MDJ readers that posted were probably making the classic behavioural finance error.

    This is such an easy error, because it was a scary time. We find working with clients that behavioural finance issues are one of the most significant investing issues.

    And it can be very subtle. We have a couple of cases were 2 family members became clients about the same time and had similar portfolios. When we look at them now, their rates of return are vastly different, even though they have both continued to hold similar portfolios. The difference is that one invested every year and found a way to invest a bit extra in early 2009. The other invested almost every year, but had job and other fears so he did not invest in early 2009. That is all it can take to have very different returns.

    I just thought I would elaborate on your comment, KIP. People that may otherwise be able to manage their own finances but hat would make significant behavioural finance investing errors would also benefit form advice.


  63. Andrew Spencer on November 8, 2012 at 2:24 pm

    My apologies for taking this long to post a follow-up….work`s been busy, I got the pink eye, and I had a couple assignments due this week on the university course I`m taking part time.

    Now to be clear, I don`t have a problem with financial planners, investment advisers or mutual fund salesmen getting paid for services rendered. I don`t work for free and I don`t expect anyone else to either.

    I also don`t care whether the fund manager beats the index or not. Mutual funds are just another product out there….I own a few on top of my diversified index portfolio and dividend portfolio.

    What I do care about is “financial professionals” coaching people who don`t understand the first thing about personal finance or investing to use leverage to invest. Borrowing against one’s home to invest in the stock market is not for the faint of heart. Anyone who needs someone like Ed to “guide” them fits into this category.

    Like I said on a post above, I’m not big on the government telling me what I can or cannot do with my money or who I can invest with….but in this case I do believe regulators need to step in and provide greater oversight. Check out the following article to see where I hope to see things go:

    What makes Ed Rempel’s particular case worse is the fact that he uses deferred sales charges (DSC) to collect his commission. For those who don’t understand what a DSC is, then please take a look at the following article produced by Rob Carrick at the Globe and Mail:

    Also..this one from Jim Yih isn’t bad:

    So, Ed isn’t paid by the person he’s giving the advice to…he’s paid by the mutual fund company. In turn, his reccomendations to use leverage only increase the commission he makes. If the person getting the advice needs to get out Ed’s scheme (within a certain time period), then they get the honor of repaying the mutual fund company for the commission that was paid to Ed. None of this is transparant.

    So….Ed, do you actually explain to your clients exactly what a DSC is and how it works? Are the penalties you use based on the invested value or the market value?

    Why not use a front-end load which is far more transparant? Is it because no sane person would give you 5% of their home equity for writing a plan and recommending a few mutual funds? I already know your answer and I don’t believe you.

    You say your “fee-based” service is charged as a percentage of the value invested? So you take 1-2% of the value of the person’s portfolio for recommending mutual funds and doing their tax return?

    Don’t get me wrong here…everything you do is legal. I don’t believe you’re a crook or ponzi schemer or anything else like that. I just don’t like how the industry allows you to operate the way you do.

    In guess the people who read this blog do like what you do…I’ve read thru a few of the posts above me. I guess that means I need to find my financial advice somewhere else.

  64. SST on November 9, 2012 at 12:14 am

    First in a Series of Three

    -“I published 2 articles at the time: “How to take advantage of the market crash of 2008? and “Irrational Pessimism?”. The market was so obviously oversold. That is exactly what buying opportunities look like. That is the single most important time to be fully invested (or at least as much as other times).

    What exactly is “fully invested”, Ed?

    How are people supposed to take advantage of these buying opportunities if they are always “fully invested” in the stock market? Does it mean throwing your 10% cash asset allocation into the stock market when there is “blood in the streets”? Or perhaps it means you, being a wise and intelligent financial advisor, advised your clients to sell pre-2008 because of all the red-flags you saw coming fast and furious, and then to re-invest that cash when opportunity rang. Or is it merely your job to keep your clients “fully invested” at all times?

    -“However, the informal poll of posts on the MDJ article was 23 people were pessimistic and 9 were optimistic.

    My point is that 23 of 32 MDJ readers that posted were probably making the classic behavioural finance error.”

    You need to extrapolate further, Ed.
    23 people were pessimistic — of the stock market.

    In 2009 I was completely optimistic with the financial choices I made, buying into asset classes which were NOT the stock market (commodities, private equity). I made some great triple-digit returns with some great tax incentives on top of it all. How did your clients holding “All Star Mutual Funds” do? Were they optimistic or pessimistic that they were fully invested? Did any of them become millionaires?

    For a comparison, you stated you sold your clients the almighty Cundill Value Fund up until 2011. All of their A-C funds 10-year annual returns barely break 4%.
    Gold holds an 18.5% annual return over the same period; silver 21.9%.
    Glad I didn’t buy any zero-return-after-inflation mutual funds.

    Over 20-years, reviled gold beats the CVF (A) 20-year annual return by a whopping 0.2%. Silver’s 20-year return soundly pummeled CVF (A) by 3.25% annually. So much for your all-star manager/stock market theory, Ed.

    **Shiny rock beat your best over the last twenty years!**

    Or do you need a longer long-term time frame?

    Great thing about living in a capitalist society is that there is more than one way to make money, and I like making more money than what Ed sells (and how he sells it).

  65. SST on November 9, 2012 at 12:18 am


    -“The stock market is not supposed to make anyone a millionaire. Your savings from your work are. The market is supposed to grow those savings at a better rate than many alternative would, say GICs.”

    That is a contradiction.
    Your savings are supposed to make you a millionaire…if you apply them to the stock market…making you a million dollars…

    Ed claims the stock market IS what makes people millionaires:

    “My point is that financial security comes from having a large portfolio, say $1 million or more.”

    “Building a nest egg probably means you need to invest in the stock market.”

    Reality is the stock market creates very few millionaires.

    -“But SST, Ed can’t show you the millionaires because he can’t force people to save more and invest more… he can only advise them to do so… as he is with us on this article…”

    What Ed is advising us to do is put our savings into the stock market because it is, according to him, the most sure-fire way to create a $1,000,000 nest egg.

    I gave an example of an 80 year-old who, over 60 years of modest/average savings applied to the stock market, would have a million dollar “huge nest egg”. But they don’t.

    The average savings rate for the past 35 years is ~9.5%.*

    The Canadian populace has done what the financial industry has sold them to do — save their money and invest in the stock market.
    Yet the industry and its “professionals” have failed catastrophically in fulfilling their advertised product — the million dollar retirement nest egg.

    Ed says this:
    “One of the fund managers we used to use until he passed away was Peter Cundill. He managed the Cundill Value Fund for 35 years with a return of 12.8%/year…”

    A savings rate of 9.5% and an investment return of 12.8%, for 35 years…and still no millionaires.

    Ed can’t show us the millionaires because they are rare, and financial industry-born client millionaires are ever more rare.

    He also doesn’t advise people to buy anything other than what he is selling, even if it is a better investment/speculation. Why would he, he wouldn’t make any money doing that.

    -“So SST, I won’t be in your millionaire club (0.6%) but that’s my fault for not working and saving more; not the stock market or the financial industry!”

    Ed would claim you are “too scared” to be a millionaire, just like the other 99.4% of the population (please re-read the above comment).

    However, you can choose to invest in other assets besides the stock market. Contrary to what Ed would tell you, stocks are not the only game in town!

    *(Very interesting to note that the national savings rate began to drop in 1982, the same year Glass–Steagall was repealed. Why save when there’s free money!)

  66. SST on November 9, 2012 at 12:27 am


    @Andrew Spencer: “Don’t get me wrong here…everything you do is legal. I just don’t like how the industry allows you to operate the way you do.”

    It’s the government which allows the industry to operate as it does.
    And we all know how amazing the government is at governing, especially those with whom they are in bed.

    That’s why Canadian banks got the bail-outs they did:



    Can’t allow your best buddies to fail, after all. That would be anti-capitalist. Amazing that there were plenty of business that survived the ’08 crash etc., yet banks, who are supposed to be the torch bearers of the financial industry went down like a sack of hammers. And these are the same people trying to sell us the notion that we are all “richer than we think”…if we give them our money.

    The government has a different definition of “legal” when it comes to themselves and their cronies aka monied corporations. As I’ve said before, imagine if every business/trade had a ‘Zero Liability/No Guarantee’ clause attached to their product and practice — chaos. But there’s only one that does — the financial industry (and casinos).

    Perhaps there is need for third-party regulation.

    As a side note, it’s interesting that CIBC was labeled “completely under water” and was the biggest borrower (as percentage of value). I did an internship at WoodGundy. It was one of the most disgusting, and eye-opening, experiences of my life. So glad I was not “institutionalized”.

  67. Al on November 9, 2012 at 3:28 pm

    @ SST

    I fully realize I am picking on a minor point here but if you live by the sword… so why are you referencing Glass-Steagall in a Canadian context? Canada amended the Bank Act in 1987 to remove Glass-Steagal-like barriers. Canada’s savings rate does not appear to have any special relation to that year; in fact the savings rate increased from 11.9% in 1987 to 12.2% in 1988 and to 13.0% in 1989; it did not fall below the 1987 level until 1994 (I know you have the data as you correctly quote the 35 year average as 9.5%; however I reference the data source below).

    In Canada you’ll note the highest savings rate occured in 1982 (20%), this is not that surprising as in fact the Canadian 5yr mortgage rates were 18% and the 10yr bond yielded 12%; as these fell so did the savings rate; I would suggest that mortgage rates and bond rates have more bearing on the savings rate than amendments to the Bank Act.

    NB1: I am not endorsing the Bank Act 1987 nor the repeal of G-S

    NB2: I hate having to reference everything but on to keep the wolves at bay:

    Canada’s Bank Act

    The Savings Rate information can be found at Statistics Canada, CANSIM 380-0004; and the mortage rates and 10yr benchmark yields at 176-0043.

  68. Al on November 9, 2012 at 5:05 pm

    And to SST, once again because I dislike sloppy math; in post 64,

    “For a comparison, you stated you sold your clients the almighty Cundill Value Fund up until 2011. All of their A-C funds 10-year annual returns barely break 4%.
    Gold holds an 18.5% annual return over the same period; silver 21.9%.
    Glad I didn’t buy any zero-return-after-inflation mutual funds.”

    18.5% is the compound annual return of gold as measured in US dollars for the ten years ended Dec 31 2011. In Canadian dollars Gold returned 13.6% for the ten years ended Dec 31 2011. You might want to re-run your figures to make for an honest compairson between gold and that fund.

  69. SST on November 10, 2012 at 11:56 am

    @Al: “…why are you referencing Glass-Steagall in a Canadian context?”

    Thanks for catching my mistake.
    What I meant to write was the institution of the Garn–St. Germain Act.
    G-S instead of G-S…heat of the moment error.

    Referenced to Canada because born in America (10/1982), G-S affected markets globally by injecting a never-ending stream of easy credit into the financial system and economies. Begining with fueling the US markets to The Great Bull(sh*t) Market Ever…as well as creating many, many fundamental problems (S&L for starters) which came to a head in 2008 and continue to this day. How did it effect Canada? Overlay TSX/S&P500/DJIA charts and you’ll get the Canadian picture.

    People had less reason to save their income because i) they could substitute credit (with declining interest rates) instead, and ii) the assets they did own (eg. stocks) were rising in price (not value) at a pace which made saving less and less attractive — just like today.

    Savings rate declined, on average, 1% per year between 1982-2002; interest rates fell, on average, 0.5% annually; the TSX (keeping it Canadian) increased in price, on average, 6% for the same period.
    Household consumer debt, 1982-2002, increased 7.5% (annual average).

    @Al: “In Canada you’ll note the highest savings rate occured in 1982 (20%), this is not that surprising as in fact the Canadian 5yr mortgage rates were 18% and the 10yr bond yielded 12%; as these fell so did the savings rate;”

    When mortgage rates started to decline, savings rates should have inclined — putting more into your bank account rather than the bank’s account. Mortgage debt declined, on average, 0.5% annually between 82-02.

    @Al: “You might want to re-run your figures to make for an honest compairson between gold and that fund.”

    I could, but take a look around, we don’t like to be THAT honest in the financial industry. But if an honest comparison were to occur, shiny rock still TRIPLED the All Star Manager returns. Thanks.

  70. Ed Rempel on November 10, 2012 at 1:40 pm

    Hi Andrew,

    As I said in post #40, I think you have me mistaken for someone else. I agree with your concerns, but we sincerely try to do it right.

    Leverage is not really the topic of this thread, but it can be a very effective long term wealth building tool, but only for people that have the right temperament, long term focus, risk tolerance and enough financial knowledge.

    We are very careful who we recommend leverage to. We have people that come to us looking for leverage, but only about 1/4 of those do we consider to be a good fit for us or suitable for leverage. We also have many people that come to us looking for comprehensive financial planning, which is our main focus, and most of those are a good fit for us.

    Leverage does not require a great deal of financial knowledge, but a clear understanding of the strategy, the risks, the math, the basics of investments, historical return norms for risk and return, etc. For anyone that wants to do leverage with us, we spend quite a bit of time educating them, regardless of how knowledgeable they are, to make sure there are no important gaps in their knowledge.

    From our experience, temperament is at least as important as knowledge. For leverage to be successful, you have to have the emotional strength to be confident in the strategy even after the inevitable market crashes. We have a personal coach talk with each potential client, so we can try to understand their temperament.

    We have found that an important key is that any leverage must be part of a comprehensive written plan. We have no clients doing leverage without a having a comprehensive financial plan.

    Taking on a new client takes 30-40 man-hours of our financial planners. Working with clients to create a personalized, comprehensive plan is time-consuming to do professionally.

    That is partly why DSC makes sense for us and our clients. DSC has several distinct advantages:

    – It compensates us for a lot of planning time up front.
    – It allows clients to have personalized planning and invest without paying a fee.
    – It encourages long term investing.
    – It costs nothing for long term investors.

    When we offer clients a reduced 2% or 3% front end fee instead of DSC, they almost never take it. Why would they pay a fee when they can avoid it just by staying invested?

    We can change the investments without incurring fee for them, so they just have to stay invested in general with us long term to avoid the fee.

    The financial media seems focused on cheap advice, not on the most effective way to pay for good advice. DSC fees can be an issue if you are working with an “investment only” advisor, as explained by Dan Richards in Rob Carrick’s article, but it is designed for clients that do not yet have large portfolios to be able to have access to quality advice.

    Of course we explain all fees in detail to every client to make sure there is no misunderstanding. Signing up a new client takes a full hour of reading through every form in detail and signing it.

    I can assure you that the regulators are heavily focused on leverage. Since 2008, there have been several rounds of increased regulation. Every client that does leverage must be approved by our dealer, and the regulators audit every 2 years. Every single client we have that has done leverage has been reviewed by the regulators.

    If you have been around the financial blog world for a few years, you probably saw many financial planners and mortgage brokers marketing the Smith Manoeuvre back in 2007 and 2008. Look around now and you will see the the effect of new regulations. Most are gone now because they were not able to work with the new rules and constant oversight.

    In short, before you use your broad brush, spend some time thinking what the proper process for providing real financial advice should look like.

    The model that we have found works effectively for clients is nothing like what you described and includes:

    – Comprehensive, professional written financial plan for every client. 30-40 man-hours from our financial planning team.
    – Full service clients only. “One plan. One planner.” For example, no leverage only clients.
    – Personal coach screens anyone that wants to do leverage.
    – Education process for all clients.
    – One hour long process to sign forms and disclose all fees in detail.
    – Fee structure designed to minimize costs for clients. Long term clients pay no fees (other than the MER).
    – All Star Fund Managers as a solid investment process and to try to earn the MERs.
    – Lower fee options for larger portfolios.


  71. Ed Rempel on November 10, 2012 at 1:44 pm


    I agree with KIP. I’ve noticed you have a knack for hijacking threads and steering them off course onto your own personal agenda. I therefore welcome your critical response but will choose not to debate financial concepts with you.


  72. Ed Rempel on November 10, 2012 at 2:43 pm

    Hi Goldberg (#56),

    You think that MDJ only applies to people with smaller portfolios?

    We find that high net worth investors (HNW investors) often don’t have much more knowledge than smaller investors and usually tend to make the same investing behavioural mistakes.

    HNW investors do tend to work with advisors more and do diversify more, but they tend to face more sophisticated marketing from the financial world.

    In my opinion, most products and services designed for HNW investors are more focused on an elite image to make them feel they are treated differently than the masses than on quality of advice. They are marketed by advisors with bigger titles in exclusive groups, and they are marketed packages that generally exclude the top fund managers but include some customization of the portfolio and nicer statements.

    HNW people can still benefit from financial education, just like people with smaller portfolios.

    The hedge fund strategies mentioned by KIP are an important asset class. They use stocks, bonds, futures, etc., but they are completely different strategies that can add a lot of valuable diversification.

    Hedge funds are considered to be a separate asset class because the strategies can make money in up and down markets, and because many of the strategies have little or no exposure to the direction of the markets.

    You need some financial strength to buy them, but not $1 million. The minimums vary by province, but typical minimums are investing $150,000 per fund, or $25,000 if you have an income over $200,000 (or a few other qualifications).

    The 2 broad categories of hedge fund strategies called “relative value” and “event driven” are most appropriate for diversification, because all the various strategies in these 2 categories involve being both long and short at the same time.

    For example:

    – Market neutral: Buy BMO and short CIBC. The market direction is irrelevant. You make money as long as BMO outperforms CIBC.
    – Convertible arbitrage: Buy a convertible security and short the stock it converts into to exploit pricing inefficiencies.
    – Merger arbitrage: Buy the company being acquired and short the acquirer to take advantage of the difference between the buy price and the market price.
    – Managed futures:

    The third category is “directional”, which includes strategies that can be far more volatile than stock markets. They can increase return without adding too much to risk IF they are a low correlation to your other holdings. Directional strategies include:

    Long/short: Buy some stocks long and some short to try to make money in both directions.
    Global macro: Take large bets in sophisticated strategies based on your outlook.

    These are all sophisticated strategies that should only be done by professionals. In fact, you have to be far more selective of hedge fund managers than mutual fund managers. The saying in the hedge fund industry is mostly true – with a mutual fund, it is 80% market and 20% manager, while with a hedge fund it is 80% manager and 20% market.

    The issue is that you give up the market exposure (beta) that normally rises long term. If you are a hedge fund manager doing one of the market neutral strategies and you have no skill, you make nothing. This is part of why hedge funds are all considered to be high risk investments – even the ones with very low volatility.

    However, adding a hedge fund or 2 to a portfolio when it is large enough make your portfolio significantly less volatile, without reducing your returns. It can reduce down-side risk and make your gains more consistent.

    Modern Portfolio Theory (MPT) explains this well. By adding a non-correlated investment with a similar return potential you can reduce your risk without reducing your return.

    The best place to start is with a “multi-strategy fund”, where the fund manager use a variety of hedge fund strategies, depending on what works well in today’s client. Different strategies work better in different types of market conditions.

    I own a couple of hedge funds personally that have been my best investments. But they will only be one portion of a diversified portfolio.

    Hedge funds are not a do-it-yourself investment, but they can be a valuable asset class to add once your portfolio gets to be moderately large.


  73. SST on November 10, 2012 at 11:30 pm

    @Ed: “In short, before you use your broad brush, spend some time thinking what the proper process for providing real financial advice should look like.”

    Wishing you would do the same, Ed.

    “Real financial advice” does not mean selling clients ONLY mutual funds in the hopes of achieving a well-marketed yet very highly unlikely dream of a $1,000,000 retirement.

    It means advising them to put their money where it will gain the highest return (without ridiculous risk, of course). Keeping one’s money in a single asset class throughout their entire investment life will NEVER build wealth.

    As my example above, gold TRIPLED the returns your All Star Manager over the last 10 years (ending 2011), and equaled the return over 20 years.
    (I use gold only because you think it to be worthless and of extreme risk.)

    Of course you will never recommend your clients to buy gold because you can’t sell them gold, ergo, you don’t make any money selling them anything other than mutual funds — even if means they will lose possible gains.

    Over history there have been very real and very measurable cycles in the different asset classes (REAL asset classes, not “alternative” or “complicated” assets). A true financial advisor would recognize these cycles and advise his clients accordingly.

    (I think it is Mike Maloney who has lots of videos to demonstrate this in a basic form.)

    Make no mistake, Ed, you are a mutual fund salesman posing as a financial advisor.

    @Ed: “I agree with KIP. I’ve noticed you have a knack for hijacking threads and steering them off course onto your own personal agenda. I therefore welcome your critical response but will choose not to debate financial concepts with you.”

    I’ll try to keep my “personal agenda” limited to advertisements for my personal company, posted under the guise of ‘helpful advice’.

    My fact-based responses are just that, critical of your financial concepts, but you have failed to address a single one. Yet you go on to debate other financial concepts:

    “Modern Portfolio Theory (MPT) explains this well. By adding a non-correlated investment with a similar return potential you can reduce your risk without reducing your return.”

    Yes, Ed, I know this.
    As a matter of FACT, Ibbotson did a very lengthy study (1971-2004) to show that a 7-15% precious metal allocation in a portfolio lowered risk and increased returns. We all know that gold (and silver) have only increased in price dramatically since 2004, thus adding even more return upon lowered risk.
    That’s FORTY (40) years of worthless shiny rocks providing increased returns and decreased risk, yet I’m sure this FACT will be ignored completely when selling Modern Portfolio Theory (MPT) to your clients.

    You do debate financial concepts, Ed, but only the ones in which you believe.

    As Andrew Spencer pointed out, everything you do is legal, and the government allows your industry to operate in the fashion which it does. Thus I guess I am SOL in gunning for any type of justification of the way your industry does business (eg. promoting the gain of $1,000,000 through stocks).

    I approach these matters very heavy-handed because I strongly agree with another Andrew Spencer remark: “What I do care about is “financial professionals” coaching people who don`t understand the first thing about personal finance…”.

    Let me ask you this, Ed — have you ever had a client who paid you for financial advice ONLY? In other words, have you ever NOT sold a client one of your mutual funds and/or other financial products (or had the express intent of doing so)?

    On a final note, and as I’ve mentioned before, the owner of this website has complete and total control of content, meaning he can allow or disallow or edit any post I submit (and he has in the past).
    Hopefully he continues to value free speech, open debate, and facts.

  74. SST on November 10, 2012 at 11:33 pm

    @Ed: “The hedge fund strategies mentioned by KIP are an important asset class. They use stocks, bonds, futures, etc., but they are completely different strategies that can add a lot of valuable diversification.”


    Now “strategy” is an asset class???

    I’m really starting to be amused now.

    No wonder there are so few million-dollar nest eggs out there.

    (p.s. — hedge funds are NOT an asset class.
    Glad to know no one will debate this financial concept.)

  75. SST on November 11, 2012 at 11:24 am

    Here’s what I REALLY want to know, Ed:

    If there are so few Canadian citizens with $1,000,000 in investable assets (ie. “a huge nest egg”), even among those who have had the most optimal opportunities in which to create such a sum — octogenarians — what makes you think you can do what those before you in the financial industry have failed to accomplish?

    Long-term data proves that $1,000,000 cannot be achieved on a broad scale — especially from stocks alone — so why do you use “building a [huge] nest egg probably means you need to invest in the stock market” as a selling point for your business?

    “Most families have 2 incomes, with an average family income close to $80,000.

    At retirement…they want at least $50,000/year before tax as a retirement income…would need $1.25 million…

    My point is that financial security comes from having a large portfolio, say $1 million or more. Most Canadians are scared to have $1 million in the stock market and will never get anywhere close…” ~ Ed

    You tell us that the average family needs $1.25 million at retirement but that most will never achieve that (a truth!). If most never reach the mark then why keep selling it? Do you tell your clients that they will in all likelihood never become millionaires?

    What’s more true, Ed, that we are too “scared” to put our money into the stock market or that the stock market fails to create millionaires?

    According to a well-respected research firm, assets of the average Canadian (3Q-2011), are comprised of 54% financial instruments (stocks, bonds), 40% real estate (principle res.), 6% other (durables, machinery, etc.).

    Looks as though people already have all their money in the financial markets — 90% of all non-real estate assets (in 1990 it was 84%, in 2000 it was 88%).
    Is 20+ years of increasing financial investment your definition of “scared”?

    (As a side note, what factual data and/or studies do you have to support your claim that “most Canadians are scared to have $1 million in the stock market”?)

    Perhaps Canadians should sell their houses and down-size in order to restructure their assets to become truly “fully invested” in the stock market.

    Just more critical response, take it or leave it.

  76. Ed Rempel on November 11, 2012 at 8:41 pm

    Hi Goldberg (#57),

    I am not specifically advocating that everyone should have $1 million for retirement. That figure would be different for everyone.

    My point is that everyone should work out their own number in detail. Work out the specific lifestyle you want after you retire and when you want to retire. Then use reasonable or conservative assumptions for the rate of return on your investments (which depends on how you invest) and for inflation, and add in any pensions or the government pensions (if you confident in both).

    You can use all these assumptions to calculate the number that you will need to be reasonably confident that you will have the retirement you want.

    For our clients, the number has been as low as $0 (for frugal people with 2 large pensions) and as high as $8 million (for people used to a luxurious lifestyle and saving with a retirement 25 years from now).

    If your grandparents can live okay on $20,000/year, that does not necessarily mean you can. We know quite a few people that are okay at $20,000/year – not very comfortable, but they are okay with it.

    However, most people in our generations have become used to a much more comfortable lifestyle. My parents grew up in the 1930s and have always been frugal. They always paid cash. They were married for a year before they bought a sofa. They are fine with their lifestyle – but I wouldn’t be.

    Then you need to make a plan to accumulate that amount.

    It often takes some work to develop a plan that is reasonably achievable, and also provides the retirement you want.

    We have helped more than a thousand people figure this out for their specific situation. Most of the time, the figure is over $1 million and often over $2 million, but often it is less than $1 million as well. The larger figures are usually people retiring in 20 or 30 years, so the cost of living will have doubled by then.


  77. JJ on November 11, 2012 at 9:16 pm

    In looking at 1,000,000 in investible assets at retirement I think it’s safe to say that it will be in future “inflated” dollars.

    When looking at how many people have 1,000,000 in investible assets now, there may not be that many. But that’s comparing present apples to future apples. Having 425,000 now is equal ~1,000,000 in 35 years from now, assuming an inflation rate of 2.5%. I have no idea what inflation was in the past or is going to be in the future however, it’s interesting when you look at it. Someone retiring with a 425,000 in savings now is roughly equivalent to someone retiring with 1,000,000 35 years from now.

    Your question regarding how many people with 1,000,000 assets now should really be: Of people investing in the stock market over the last 35 years, how many of them have amassed a 425,000 portfolio that in turn be “worth” 1,000,000 35 years from now?

    I think there’d be quite a few people retiring with 425,000 of investible assets in this day and age.

    I used this calculator for inflation:

  78. Keeping It In Perspective on November 12, 2012 at 4:31 am


    Again your over confidence in your financial acumen continues to amaze me.
    Google alternative asset class and the first three links explain why hedge funds and private equity ARE alternative asset classes.

  79. SST on November 12, 2012 at 8:54 am

    @KIIP: If you say so. Believe what ever the financial industry wants you to believe. I can’t stop them.

    If hedge funds meet the following criteria, then I guess they are an asset class unto themselves. Good luck.

    To be an asset class the investment needs:
    i) conceptually similar securities
    ii) high correlation between the various investments within the class
    iii) to be material
    iv) a quality set of available and reliable data
    v) ability to invest passively
    vi) exclusivity

    Hedge funds, private equity, “strategy”, et al all boil down to the same ol’ stuff.

    See ya at $1,000,000!

  80. SST on November 12, 2012 at 10:46 am

    @JJ (#71): “In looking at 1,000,000 in investible assets at retirement I think it’s safe to say that it will be in future “inflated” dollars.”

    Not according to Ed:

    (#3) “Most families have 2 incomes, with an average family income close to $80,000.

    At retirement, they want a similar lifestyle…which means they want at least $50,000/year before tax as a retirement income.

    If you use a rule of thumb based on the “4% solution”, you would need $1.25 million so that you can take out 4%/year and take your modest $50,000/year retirement income.”

    Thus, a couple retiring NOW would need $1.25 million to continue their current lifestyle.

    -“I think there’d be quite a few people retiring with 425,000 of investible assets in this day and age.”

    You might be correct. But they will be retiring poor, according to Ed’s calculations — $17,000 per year (before taxes; excluding union/government pensions).

    According to a recent study by an award-winning financial industry insider, the annual expenses of the average retired household (age 65-74) is ~$30,000, with 60%(!) of that money coming from the government (CPP, OAS).
    Total expenditures are less than half of the average after-tax income for Canadian household.

    Thus, in REALITY, at retirement a household needs $12,000 a year income from their investments. This requires, using the antiquated ‘4% Rule’, a “huge” nest egg of $300,000. Or, $3,300 per person saved per year over a 45-year working life (that’s cash only, no need for the financial industry).

    Hmmm…seems to me that some reality-ignoring financial advisors are over-selling their clients by 400%.

    With $300k come and gone, guess I can stop saving for retirement! :)

    @Ed (#76): “I am not specifically advocating that everyone should have $1 million for retirement. Most of the time, the figure is over $1 million and often over $2 million, but often it is less than $1 million as well. The larger figures are usually people retiring in 20 or 30 years, so the cost of living will have doubled by then.”

    First off, what double speak.
    How can it be “most of the time” $1-2+ million but also “often…less” than $1 million at the same time? Unless it is a 50/50 split (which would constitute neither “most” or “often”), it is “most/often” in ONE direction, not both.

    Do you tell your clients the historical rate of millionaires as well?
    Are the people who would be retiring in 20 or 30 years, 20 or 30 years ago, now retiring as millionaires simply because the cost of living has doubled since then? (The cost of living has doubled in the last 10 years, btw).

    In your above example, a very average couple needs $1.25 million to retire now, but would need $2.5 million in 20-30 years due to inflation.
    You mention cost of living increase but fail to mention wage stagnation/deflation (excluding union/government employees), making the road to millionairedom even more difficult.

    If millionaires were rare 20-30 years ago, and are are rare now, what data-set projections do you use to show that people have a strong chance at becoming millionaires in the future (that is, breaking the historical trend)? I’ve already mathematically shown that millionaire status won’t be changing in the next 10 years (#36), perhaps the 10 years after that will see gangbuster growth?

    Just more unanswered on-topic critical responses.

    See ya at $1,000,000!

  81. SST on November 12, 2012 at 12:23 pm

    Just so you don’t think I’m picking on you, Ed, this from one of your forward-thinking financial industry colleagues:

    “…there are time periods where stocks are a terrible addition to that portfolio. Yet inexplicably, we as planners STILL tend to suggest that it’s “risky” to not-own stocks, when in reality the only material risk is to our business and ability to keep clients, NOT to the client’s goal.”

    ~ Michael E. Kitces, CFP, CLU, ChFC, RHU, REBC (and Heart of Financial Planning Award winner)

  82. SST on November 12, 2012 at 12:47 pm

    And more:

    “Over an investing period of about 40 years…someone who avoided the 10 biggest slumps would have ended up with two and a half times the capital gains of someone who simply stayed in all the time.

    It may not be possible to “time” the market, but it is possible to reach intelligent conclusions about whether the market offers good value for investors.

    Consider the data from Professor Robert Shiller at Yale University. He tracks…”the Shiller PE”.

    It was clear as a bell that investors should have gotten out of stocks in 1929, in the mid-1960s, and 10 years ago. Anyone who followed the numbers would have avoided the disaster of the 1929 crash, the 1970s or the past lost decade on Wall Street.

    Why didn’t more people do so? Doubtless they all had their reasons.

    But I wonder how many stayed fully invested because their brokers told them “You can’t time the market.” ” ~ WSJ

    “Fully invested” is good for business.

  83. Andrew Spencer on November 12, 2012 at 3:23 pm

    Hello Ed, maybe I did get you mistaken for someone else. My apologies if that is the case.


  84. Ed Rempel on November 14, 2012 at 12:45 am

    Thanks, Andrew. I appreciate you having the courage to post an apology. There is sometimes a lot of bravado on these threads, so sincere comments are appreciated.


  85. Ed Rempel on November 14, 2012 at 1:09 am

    Hi Goldberg (#60),

    What do you mean the $20,000 from the government is always ignored by financial advisors like me? We never ignore it.

    The $20,000 from the government is partly CPP and partly OAS. It can be as high as $36,000 if both people in a couple receive the maximum CPP and OAS.

    In our opinion, the CPP is generally reliable. There is a huge pool of money built up to support it. The CPP board claims it is sustainable for the next 50 years. It is possible that with all the baby boomers retiring, they may not be able to fully index it to inflation or they may reduce benefits a bit, but we believe that for the most part it will be there.

    The maximum CPP is almost $12,000/person, but is depends on how much you paid in. The average actual benefit is just over $6,000/person.

    OAS is a different situation. There is no pool of money. It is paid entirely out of each year’s tax revenues. It is clawed back for people with incomes over about $68,000, but that is relatively high. The benefit depends only on how many years you have lived in Canada by age 65. If it is 40 years, you get the maximum of just over $6,000, even if you never worked in Canada or earned any money in Canada.

    Today, there are about 4 people working in Canada for every OAS pensioner. In 20 years, there will be about 2.5 people working for every OAS pensioner. This does not appear to us to be sustainable. That is why the government recently raised the benefit start from age 65 to age 67. We believe that it is still not sustainable, so more changes will be coming.

    They may increase the age further, perhaps to age 70. The other option, which we think is more likely, is to reduce the clawback income from about $68,000 to perhaps $30,000. Then many more people would have their OAS clawed back, which could make it sustainable.

    The problem with this scenario is that anyone that saves a reasonable retirement nest egg may then end up losing their OAS, especially if it is taxable, as with an RRSP or pension. That would fit with the spirit of Canada. We like to help people, but not if they have their own income.

    In practice, when we prepare retirement plans for clients, we usually estimate full CPP based on how much each person has contributed, but often show a lower inflation indexing for CPP. We usually include full OAS for people relatively close to retiring, such as age 50-55 or older, but tend to exclude it for younger people, especially if they will have significant other income in retirement.

    We try to include all the government benefits that we are reasonably confident each person will receive.


  86. SST on November 15, 2012 at 1:05 am

    @Ed (#84): “There is sometimes a lot of bravado on these threads, so sincere comments are appreciated.”

    A sincere fact is that the average long-term (1929-current) growth trend in North American millionaire population is 2% per annum (probably less in Canada than the US due to heavier taxation and more rigid regulation).

    Thus, in 30 years time, Canada will have amassed a whopping 1% of its population (age 15+) as millionaires.

    Of course there are some analytical reports which document ‘net worth’ wealth instead of ‘investable assets’. Even these plot million-dollar Canadians at a scant 3% of the current population. Again, applying the same growth rate, in 30 years the number of Canadian net-worth millionaires will have appreciated to 5.5% of the population.

    My questions are:

    i) is it sincere that the financial industry/a financial advisor would ignore a factual and real long-term trend in favour of selling the virtually unattainable $1,000,000 dream?

    ii) isn’t it “a lot of bravado” that the financial industry/a financial advisor would think their skills and products so great as to beat the overwhelming negative long-term odds?

    In 30 years 1-5% of the Canadian population will have $1,000,000 or more (depending to which measure you subscribe).

    I’d wait for a retort on these very much on-topic facts, but I know there won’t be one.

    Please, dear reader, go ahead — ignore the math and buy a mutual fund.

  87. Andrew Spencer on November 16, 2012 at 3:05 pm

    SST…you sure jabber on like you`re the next Warren Buffet…lol

  88. SST on November 16, 2012 at 8:17 pm

    @Andrew Spencer: thanks.

    p.s. — when you (or Ed) can provide any factual and/or mathematical data (instead of immature affronts) to disprove my on-topic critical responses of this article please get back to me. Closing in on 100 comments and you (and the OP) have failed to do as much. Won’t be holding my breath.

    Have a GREAT weekend!

  89. Ed Rempel on November 16, 2012 at 11:19 pm

    Hi Paul T. (#50),

    Picking the mutual fund that will beat the index over the next 15-20 years is not nearly as difficult as it sounds. The trick is that you need to study the fund manager, not the fund.

    I’ve been studying fund managers for years. By analyzing returns and stats, reading everything they write, trying to understand what they do, meeting them to assess personality characteristics, and learning about various investing strategies and how they work, I believe that I can identify them.

    Research supports me, as well. The most in-depth study on the topic was the study on Active Share. It went far beyond just looking at average fund managers and tried to categorized them to try to identify those with real skill.

    This study found that fund managers that were true stock pickers with high Active Share that beat the index tended to continue to beat the index. This is also my experience.

    The problem with most fund managers is the problem of most of the financial industry – being focused on creating something that will sell, instead of focusing on quality and skill. I can weed out most of them very quickly by seeing them focus on marketing instead of the most effective investing.

    If you focus on finding the most skilled fund managers, you can identify them.


  90. Paul T on November 19, 2012 at 9:11 am


    What is the average tenure of a mutual fund manager? Months? Years? Very few stick around for decades. What is the churn rate for MF managers in the Canadian market? Bad MF managers get fired, good ones strike out on their own.

    So lets pick a fund manager. And what happens when that manager leaves said fund company? Do I get back my 2-3 Front End Load charge? Or just charge me again when we flip funds to “follow the all star manager”?

    In any case, I (and certainly seem many others on this site) feel like we’re behind the 8 ball by using Mutual Funds. The fund has to outperform by 2-3% each and every year just to break even with the markets. That’s a pretty big hole to dig yourself out of year in and year out.

    The last thing I’ll say Ed is that I appreciate you coming on here, making a point and defending it. Some people you’ll have a hard time convincing (myself included). We need to see the concrete proof to be convinced.

  91. SST on November 19, 2012 at 8:57 pm

    @PaulT: “Ed…I appreciate you coming on here, making a point and defending it. We need to see the concrete proof to be convinced.”

    Ed has yet to defend his “$1,000,000 Retirement Nest Egg” end-game with “concrete proof”.

    He says this:
    “The problem with most fund managers is the problem of most of the financial industry – being focused on creating something that will sell, instead of focusing on quality and skill.”

    Pre-dated by this:
    i) My point is that financial security comes from having a large portfolio, say $1 million or more.
    ii) Building a nest egg probably means you need to invest in the stock market.
    iii) you should work with one financial planner
    (Ed provides a nice link to his company’s website, just in case you wanted to buy some mutual funds ASAP).

    Add it all together and Ed is just another mutual fund salesman working within the financial industry trying to sell HIS business and HIS investment concept. To believe anything else would be foolish.

    What he has never done with “concrete proof” is refute the factual data reality that 99% of the Canadian population will NEVER accumulate one million dollars in investable assets, let alone do it via the stock market and mutual funds.

    The financial industry is so reliant on long-term data (eg. S&P 500 historical) to hook clients, yet refuses to acknowledge factual long-term trends which nullify its sales pitch (eg. growth of millionaire population).

    Ed is selling a financial industry manufactured and marketed dream.

    He gives undue hype to his “All Star Fund Managers” (a selling point with a catch phrase), and provides this example:
    “One of the fund managers we used to use until he passed away was Peter Cundill. He managed the Cundill Value Fund for 35 years with a return of 12.8%/year vs. the MSCI World index of 10.7%/year.”

    That’s all fine and dandy. What he doesn’t tell you is that for the past 20-years, the same fund has returned 8.2% /year while the S&P 500 (dividends reinvested) has returned 8.5%/year — no manager required.

    Over the past 20 years gold and silver, those most useless and worthless of shiny rocks, have also beat the annual returns of Ed’s selling-point manager. Again, no manager needed to hold precious metals. No need to complicate things.

    That’s TWENTY years of paying “All Star” manager fees to NOT beat the market. A market index and shiny rock out-performed that specific “All Star Fund” for almost 60% of its life. Besides that, the S&P 500 index (dividends reinvested) returned 11.9% annualized over the same 35 year time period as the “All Star Manager” fund.

    Beating the index by less than 1% is not too “All Star”.

    Plenty of holes in what the financial industry and its representatives are pushing to the public. You’ll most likely be retired by the time any “concrete proof” is provided by Ed et al.

    Thanks for playing.

  92. Ed Rempel on November 20, 2012 at 12:52 am

    Hi Paul,

    Thanks for the kind words. I also appreciate the open exchange of ideas.

    To answer your question, I don’t know the average tenure of fund managers, but the ones we are working now have mostly been around for 10-20 years as a fund manager – some longer some shorter. Some are managing the same fund as 10 years ago, some a different fund, and some international fund managers have only had a fund created for them in Canada a few years ago.

    If the fund manager does change funds, it is not a problem. We can either change to follow him or just switch to a different All Star Fund Manager. There is generally no charge to switch to a different fund manager, whether he is with the same fund company or a different one.

    Why would a fund manager have to beat the index “each and every year”, though, Paul? Nothing is that consistent in stock market investing. The index cannot beat my chequing account “each and every year”.

    All a fund manager has to do is beat the index over time after fees.

    I found the study I mentioned in post #48 fascinating. The best investors of all time only beat the index on average 2 years out of 3, but beat the index by wide margins over time.

    As for concrete evidence, as I mentioned, there are compliance and business reasons why I cannot reveal our actual fund managers.

    There are some good and in-depth studies. Google “Active Share” and “Superinvestors of Graham-and-Doddsville”.

    There is logic. In every field, there are people that are significantly superior. I can identify many of the world’s top hockey players. The best football players, as well (Canadian, though, since I’m an Argos fan). If I researched it, I could probably identify top people in most fields. Why would investing be any different?

    Other than that, the most concrete thing you can do is do some research. Find out which fund managers have outperformed their index for the last 5 or 10 years. Look at individual years as well. Start a list of potential top fund managers. Then cross off the “closet indexers”, the ones with strategies that you don’t think will work long term. Research the fund manager and his track record across whatever fund he was the lead manager. Read independent reviews and their writings. Try to meet them. Eventually, you will find a few that you believe have real stock picking skill.

    I should add that hardly any are large cap Canadian. I don’t really consider large cap Canadian to be a core area to invest, since it is almost 80% in just 3 semi-correlated sectors. Our fund managers are in mainly different areas, such as global, US, small cap, or all cap.

    I can tell you that I am very confident in them personally and have 100% of my investments with them.

    I have not owned an individual stock, index or ETF, or any other investment – I have owned nothing but mutual funds and hedge funds managed by the fund managers that I consider to be All Star Fund Managers since I figured out this strategy more than 10 years ago.

    If I thought that buying indexes or picking my own stocks or something else was a better strategy, then I would invest that way and recommend the same thing for our clients.


  93. SST on November 20, 2012 at 11:52 am

    “All a fund manager has to do is beat the index over time after fees.

    As for concrete evidence, as I mentioned, there are compliance and business reasons why I cannot reveal our actual fund managers.”

    As for more concrete evidence, factual data shows the S&P 500 (and gold and silver*) beat Ed’s lone revealed fund manager over the last 20 years, and that same manager managed to beat the S&P index by less than 1% over the last 35 years.

    This is the kind of performance that is going to make you “a large portfolio, say $1 million or more”?

    “If I thought that buying indexes or picking my own stocks or something else was a better strategy, then I would invest that way and recommend the same thing for our clients.” — Ed

    “$10,000 invested with [the Cundill Value Fund for 35 years] at the end of 1974 would have grown to $843,392…” — Ed

    One of the Motley Fools showed that buying just five (5) Blue Chip stocks since 1982 resulted in a $1.5 million dollar portfolio ($10,000 initial investment; 30 year term).
    Less time, more money, no manager.
    There goes another theory out the window.

    “The problem with most fund managers is the problem of most of the financial industry – being focused on creating something that will sell, instead of focusing on quality and skill.” — Ed

    “…BUSINESS reasons why I cannot reveal our actual fund managers…since I figured out this STRATEGY more than 10 years ago.” — Ed

    Yup, Ed is no different — he is trying to sell you his product.

    In theory it might work, in reality, however, the facts — no millionaires, let alone stock market millionaires — prove it does not work.

    Ed will never acknowledge these facts because it would negatively affect his strategy sales and business income.

    Capitalism and Free Speech, great stuff!

    *Ever been to Ed’s company website?
    ALL the slogan-accompanying images are of gold and/or silver.
    Why would a financial advisor who despises gold and silver use gold and silver pictures to front his company? Perhaps it’s yet another marketing tool to sell his product, knowing that the general public has an ingrained psychological connection between gold and wealth. If all Ed does is sell mutual funds and insurance, why not display stacks of paper or ticker numbers? Seems more honest, no?

  94. SST on November 21, 2012 at 11:14 am

    @Paul T: “What is the average tenure of a mutual fund manager?”

    Ed: “I don’t know the average tenure of fund managers…”

    ANSWER: “The average tenure of a fund manager was 2.9 years in 2008, down from 4.4 years in 2005” — Financial Post, 02/2011

    I can only imagine it is even less now.

    As for actual fund tenure:
    “Only 42% of the mutual funds that were around in 1990 still exits today. Most were merged into other mutual funds to erase their poor track records.” — Money Sense, 02/2011

    See you at $1,000,000!

  95. SST on November 21, 2012 at 9:25 pm

    A lovely and topical article:
    “Think your investment adviser has a fiduciary duty to you?” — David Baines

    **”Securities legislation in Canada imposes a duty on registered advisers and dealers to deal fairly, honestly and in good faith with their client,” the [Canadian Securities Administrators] paper states.

    “We are not aware of any court or regulatory decision that has concluded that this duty creates, or is equivalent to, a fiduciary duty.”

    Advisers are required to ensure that the investment is suitable for the client. However, as the paper notes, that only takes us so far.

    “This does not necessarily mean that the product must be the ‘best’ product for the client,” the paper states.

    That’s because the securities industry – particularly the mutual fund industry – is steeped in self-interest.

    As of Aug. 31, there were 81,835 registered mutual fund salespeople in Canada. Under the terms of their registration, they can only sell mutual funds, not ETFs.”**

    The problem with the financial advisor in the OP is that he is a financial planner — with a deep vested interest in selling mutual funds.

    This financial planner will NEVER tell his clients that amassing $1 million in investable assets is factually near impossible, even more so trying to do it via mutual funds. That would be bad for business; instead he tells them that they will almost positively require more than a million.
    (Hey, someone wins the lottery every week, right? It’s possible!)

    He will, most likely, also NOT try to sell his clients his services and/or products in favour of buying other investments outside of his company, even if it is not “the best” financial product for the client. Again, this would prove detrimental to income streams.
    (Historical data contains reams of proof to show many investments reap larger gains, with similar or less risk, than stocks and mutual funds)

    Every other asset classes and investment avenues (even debt reduction) are disregarded in favour of company income — conscious ignorance.
    All done “fairly, honestly and in good faith”, of course.

    Want a true “All Star” financial advisor?
    Find one with a holistic economic view that has no fiscal ties or undying bias toward one single product.
    (And one who does not willingly ignore blatant facts.)

    Example: I’ve retained the services of the same financial advisor (not my sole advisor) for almost 15 years. About 12+ years ago he advised buying commodities — gold, silver, oil, et al. Now he is advising to buy a specific “sector” of equities (nation, not product).
    I pay him for his advice and he doesn’t try to sell me anything.

    Things change in the world, clinging to one investment form is a guaranteed way to never get that “huge nest egg”.

    Have a good read!

    See you at $1,000,000!

  96. SST on November 25, 2012 at 11:15 am

    @SST: “Want a true “All Star” financial advisor?
    Find one with a holistic economic view that has no fiscal ties or undying bias toward one single product.”

    The following taken from the website of MDJ contributor Brian Poncelet, CFP (

    “Because Brian is an independent planner, he has no ties to a specific bank or mutual fund company. There is no pressure or incentive for him to sell “in-house” services. This allows him to seek out the best product in the marketplace according to the specific needs of his clients.”

    We need more Brians.

  97. SST on November 25, 2012 at 10:18 pm

    George Soros and John Paulson just upped their gold holdings to 4 and 66 TONS, respectively.

    Yes, that read ‘tons’.

    But what do billionaires know?
    (Except how to make money, that is.)

    I wonder what their mutual fund holdings are?

  98. JJ on November 26, 2012 at 9:52 pm


    Do you have a reference for them actually buying gold? All the articles from August 2012 say Paulson has bought gold companies and ETF’s with his hedge fund. These facts may be old but I don’t know where any new facts are. Maybe you can enlighten us?

    “Billionaire John Paulson raised his stake in an exchange-traded fund tracking the price of gold while selling other stocks during the second quarter.

    Paulson & Co. purchased an additional 4.53 million shares of the SPDR Gold Trust, the firm’s largest position, and bought more shares of NovaGold Resources Inc”

    “John Paulson, founder of hedge fund Paulson & Co., added shares to all but two of his gold holdings in the fourth quarter. ”

    “According to Bloomberg News, Paulson & Co. and Soros Fund Management bumped up exposure to SPDR Gold Trust to 21.8 million shares and 884,000 shares, respectively. In 2010, Soros called gold “the ultimate bubble” during an appearance on Reuters television. “It may be going higher but it’s certainly not safe and it’s not going to last forever,” he stated.”–abc-news-savings-and-investment.html

    Seems like your example are all the paper products of gold which you despise. None of the articles say how much actual gold nuggets are/if being bought.

    Historically it looks like gold has outperformed bonds.

  99. Ed Rempel on November 26, 2012 at 11:41 pm

    Hi Paul,

    I understand the concerns you raised. Here is why I am not really concerned about them.

    First, if a fund manager does leave, you can just switch to another All Star Fund Manager for no fee. Switching within a fund company does not trigger a DSC fee. If we have a fund manager leave and want to switch to a fund manager with a different fund company, we just rebate the DSC fee.

    None of our clients have ever paid a DSC fee when we are recommending to switch to a different fund manager.

    Second, you need to understand the typical life of a fund manager to realize that the top fund managers tend to stay with their fund.

    Here is a typical process. Fund managers start out as analysts. They get a CFA degree (certified financial analyst). Their first job is hopefully as an analyst, analyzing a sector as part of a team. Eventually, they may become a respected analyst on their own.

    The top analysts may be given a small fund to manage, or a sector of a larger fund. The top guys may eventually be given their own fund to manage.

    Working as a fund manager that is an employee of someone’s else’s company rarely makes you big bucks, even if you are good. The top fund managers mostly start their own investment company and then get contracts with various mutual fund companies to manage a fund for them. This could be taking over an underperforming fund. Once you have a reputation, a fund company may create a new fund just for you.

    Most top fund managers have their own investment firms. Often, the fund they manage was created by a fund company for them and they have been the sold fund manager since inception. Quite a few are assigned underperforming funds.

    With only the odd exception, hardly any of our fund managers are employees of a bank, insurance company, or mutual fund company. Nearly all own their own investment firm.

    They can still lose a contract and have a fund taken away from them, but this is much less often than you may think. The turnover happens mostly with fund managers that are employees or fund managers that are moving up through the ranks in their career.

    For these reasons, the turnover for the top fund managers tends to be quite a bit less than for other fund managers. It is not a major worry of ours, though, since we can easily move to a new fund manager for no cost, if necessary.


  100. SST on November 29, 2012 at 12:48 am

    @JJ: Yup, they are buying ETFs and company stock. Why? Because they are moving up the ladder of greater returns. That is, they (Soros esp.) see things such as mining stocks as extremely undervalued short term, whereas all the easy money in the underlying physical metal has already left the building.

    As I stated, it’s obvious billionaires know how to make money. They are not buying gold etc for the sake of owning gold, they are doing it because they think these gold vehicles will give them the greatest return in terms of dollars — just as Buffet did with silver so many years ago (and then “gifting” it to Barclays — remember them from the LIBOR largest-ever fraud?). Cash is the end-game for these mega-capitalists. It is king, after all.

    Then again, the most important fact which you missed was that both Soros and Paulson are, quite possibly, “authorized participants” of GLD (or very closely linked to APs) and can very easily take delivery of physical gold when they sell their shares. All other “ordinary” investors must accept only cash settlement.

    It’s for this reason (among others) which I stand by my anti-precious metals ETF stance for ordinary investors. Billionaires play by different rules.

    Regarding Soros and his personal history, I wouldn’t put it past him to already be in possession of a big mound of physical gold.

    See you at $1,000,000!

  101. SST on December 1, 2012 at 8:10 am

    @JJ Re: Billionaire gold — The more intriguing of the two billionaires being Soros, as I’ve stated, because of his personal history.

    Paulson may just be an “all-in” bull trying to ram his way to profits; he’s done rather well this century.

    Soros, on the other hand, some would say, has an agenda which has nothing to do with money. You have to piece things together: Soros with solid White House connections, the US government strongly considering re-instating gold as money, Soros with four tons of gold at the ready… Who knows what he’s up to, pure profit might not be his end-game. What’s the old adage: He who owns the gold makes the rules. (Never has the same been said of mutual funds!)

    A whiff of agreement between Ed and myself in that one might want to know the man behind the money before following his investments.

    See you at $1,000,000!

  102. SST on December 1, 2012 at 11:43 am

    A great post to close out Financial Literacy Month!

    Just read this apropos study by New York University economics professor Edward N. Wolff:

    As FT is defining his MIllion Dollar Journey by household net worth, use of these metrics is valid.

    The paper states MEDIAN household net worth is $57,000 (2010 dollars).

    Also stating there was 7.655 million households with a $1,000,000 net worth — the lowest level on the millionaire pyramid.

    The USCB claims 114.2 million households in America (2010).

    (note: I use the USA because, as I’ve stated before, it is most likely much easier to accumulate wealth in that country due to different taxation and regulations. However, the two economies are intertwined and the US provides somewhat of a mirrored standard for Canada.)

    i) a full 50% of households are extremely far from the $1,000,000 mark, so much so that it might as well be $0. In fact, 19% of all US households do have “zero or negative” net worth.

    ii) only 6.7% of ALL households hold $1,000,000 of net worth (a much broader measurement than ‘investable assets’).

    iii) only 8.3% of ALL households owned mutual funds (2010).
    The $1,000,000 group holds just 15% of net worth in “corporate stock, financial securities, and mutual funds”.
    (Important to note that 75% of mutual fund ownership is held inside employer-sponsored retirement plans; this may be US-specific.)

    a) even in the easiest possible environment, there are relatively very, very few millionaires created; either measured strictly by individual and/or investable assets (0.6%; Canada), or broadly by household and/or net worth (6.7%; America).

    b) the recorded millionaire portfolio has a MAXIMUM 15% mutual fund allocation.

    See you at $1,000,000!

  103. SST on December 3, 2012 at 11:20 am

    Oh! Thanks for the edit, FT!

    Guess I’ll have to re-word that last paragraph….

    Wondering how the financial industry can ethically/morally continue to sell the “$1,000,000 Retirement Fund” (esp. via mutual funds) when mathematical facts continually prove that this course of action does not work, and has never worked, as advertised?

    Hope that’s acceptable.

  104. FrugalTrader on December 3, 2012 at 11:38 am

    @SST, no offense intended. However, it is our policy to not allow any personal attacks on our site.

    Thanks for understanding.

  105. SST on January 7, 2013 at 12:26 pm

    Pay close attention to how your CPP is being invested:

    “We believe that private equity assets can produce risk-weighted returns that will outperform public equities in the long run,” he [CPPIB’s newly appointed and well-regarded CEO, Mark Wiseman] told the Globe and Mail in September 2012.

    CPP’s holdings in publicly traded companies amounted to 33.2 per cent of the portfolio…”

    Probably not a lot of mutual funds in that portfolio.
    Just one more high-level case for private equity investment.

  106. SST on January 14, 2013 at 10:34 pm

    I ran across a very interesting man this weekend:

    Ian Gordon*, a Canadian independent stock broker (retired), developed his “Longwave Theory” and started trading it in 1998/99.

    *His portfolios consist exclusively of gold mining stocks.

    *His average annual rate of return is ~70% since inception.

    *He started to charge a fee for his information only this year; his knowledge was free prior to this.

    As Mr. Rempel began his mutual fund sales career around the same time period, it would be interesting to compare the gains of Ed’s own “All-Star Manager Theory” to the gains posted by Ian’s theory.

    Eg. $10,000 invested with Ian in 1999 would be worth almost $3.5 million today.

    So much for gold being worthless and high-risk.

    The above reminded me of Harry Browne’s “Permanent Portfolio Theory” in which 25% is allocated to gold (and 25% in cash).
    It’s 40-year CAGR is 9.7% and had only two negative seasons — 1981 @-4% and 1994 @-2.5% (there was 2008 @-0.7% but considering what everything else was doing…).

    William Bernstein did a 45-year back-test using pure market data and found the P.P. returned 8.5% annually (7.7% volatility), while a 60/40 stock/bond portfolio returned 8.8% (11.3% volatility).
    The increase in volatility far outstripped the marginal gains.

    How could high-risk gold and zero-dividend paying/zero-earnings cash, and gold, contribute to such a rock-solid (and volatility-adverse) performance for four decades running?

    Yet another example that the road to the elusive “huge nest egg” has many, many options. Conventional “wisdom” is usually not the wisest convention.

    *Mr. Gordon lives in B.C., it would be great to hear any tips he has on living frugally in this province! Beyond riding a bike and eating Chinese food, that is…

  107. SST on January 31, 2013 at 10:20 pm

    New data from StatsCan re: 2011 spending:

    “Single seniors reported $26,047 in household spending.”

    With an average annual government cheque of $18,000, that leaves said senior to come up with $8,000 of his/her own scratch.

    Assuming the obsolete ‘4% rule’, the senior has a “huge nest egg” worth approximately $300,000.

    Saved over a 45-year work life, that’s $70 per pay cheque (bi-weekly; 5% interest).

    The 5% is the approximate average return rate (+/-) of the ultra-conservative Canada Savings Bonds over that 45-year span.

    No mutual funds needed.
    No financial advisors needed.
    No stock markets needed.
    No $1,000,000 marketing scheme needed.
    No fees. No fees. No fees.
    No risk needed.

    Just savings.

    Don’t believe the hype.

  108. Ed Rempel on February 3, 2013 at 2:00 am

    There are a few reasons post 107 would not work for most people today:

    1. Most people today would not consider $26,000/year a comfortable retirement income. Today’s retirees mostly grew up during the Great Depression and might be able to get by on near poverty level incomes, but most people in our generation have become accustomed to a much more comfortable life.
    2. Retirement income should allow for inflation. After 25 years, the cost of living with 3% inflation would double. Inflation generally hits seniors harder, since the expenses they commonly pay are affected more by inflation. This means that over a 25-30 year retirement, you should plan for your income to at least double.
    3. The 4% rule still has some validity. It assumes you have a diversified portfolio averaging 6% or so, which allows you to take 4% out every year. You cannot get that return with Canada Savings Bonds.
    4. You can’t get a 5% rate on Canada Savings Bonds today. The basic bonds are at .6% and the premium bonds at 1.2%. The average was much higher because rates were much higher back in the 1970s and 1980s. However, we also had very high inflation then. Canada Savings Bond interest rates are usually roughly equal to inflation, so they are not useful for growing a retirement nest egg.
    5. A 45-year investing time horizon is not realistic. Most Canadians save for less than 30 years. If you use 30 years instead of 45, $70 bi-weekly at 5% grows to only $123,000, not $296,000.
    6. Why would anyone want to invest only in CSBs over 45 years when you could make a far higher long term return in a proper portfolio?

    In any event, nobody should use stats for average Canadians in their retirement plan. You should create a personal goal for your situation, which includes your actual spending, the specific lifestyle you want after you retire, assumptions applicable to your situation, and a reasonable long term return based on investments suitable for you.


  109. SST on February 3, 2013 at 11:55 pm

    re: #108

    Addressing a few points lays moot to the rest of that post:

    1. It matters not what “most people would not consider”, it only matters what actually is. Reality tells us retiree expenditures are ~$26,000 a year. Period. Regardless if said retiree would prefer a more “comfortable” retirement.
    (And today’s eldest retirees were barely born in the Great Depression.)

    5. How rich! You call a 45-year saving span “not realistic” yet staunchly commit to using truly un-realistic non-investable S&P data reaching back to 1880?!?
    Sales people are amusing.

    Then there are your glaring incongruent statements:
    “nobody should use stats for AVERAGE Canadians in their retirement plan”

    Yet you do EXACTLY this in post #3 in attempts to validate your “huge nest egg” theory:
    “with an AVERAGE family income close to $80,000…would need $1.25 million”.
    Also completely ignoring your own income information in post #85: “The AVERAGE actual [CPP] benefit is just over $6,000/person; …the maximum [OAS] of just over $6,000”, which results in an average $300,000 retirement nest egg.

    Not to be out-done by this:
    #3: “Most families have 2 incomes…they want a similar [comfortable] lifestyle…which means at least $50,000/year before tax as a retirement income.”

    #108: “Most people today would not consider $26,000/year a comfortable retirement income.”

    First you say $50k is a “comfortable” retirement for a couple — that’s $25k each, but then you claim an even greater amount — $26k — is not a comfortable retirement income. Which one is it, Ed?

    Face the FACTS, Ed — 99% of people will never have $1,000,000 (investable assets) before, during, or after retirement, and of those very few who do, they certainly did not achieve the wealth through the stock market, let alone being fully invested in mutual funds.

    Don’t believe the hype.

  110. SST on February 7, 2013 at 9:27 pm

    Reposting from another MDJ article:

    Good FP article on this topic:

    “…the amount of income you need after retirement if you want to consume at the same rate as when you were working…is only 50% of your gross income and might even be less.”

    “In general, a couple with two children and a home can calculate their target RRSP balance by taking the portion of their household income over $70,000 and multiplying it by 6. These calculations assume you will retire at 65 and achieve a net return on your savings of 5.75% per annum both before and after retirement.”

    (currently reading a 2010 paper by the author to investigate the methods)

    Thus, an average retired Canadian household (working income $70,000) would require only 47% of gross income, need not contribute any money to an RRSP, and only save 4% of gross for 35 years to attain the same-level of consumption as their current lifestyle (coupled with government transfers).

    That’s saving $2,800 a year for a total of $280,000.
    [$115 a month per person in the household.]

    Kinds flies in the face of Ed’s theory:
    “with an AVERAGE family income close to $80,000…would need $1.25 million”.

    $1.25 million vs. $280,000.

    No wonder the financial industry tries in desperation to sell its products.

    Don’t believe the hype.

  111. SST on February 10, 2013 at 12:02 pm

    #108: “The 4% rule still has some validity.”

    An American paper comparing five retirement strategies — the ‘4% Rule’ comes out as the worst by 15-45%.

    Also notice the household retirement portfolio is $250,000, similar to that used in #110. No where near $1,250,000.

  112. SST on February 12, 2013 at 10:11 pm

    Yet another article opposing Mr. Remple’s ‘$1,000,000’ retirement theory.

    Gerlsbeck’s Calculation:
    Household earning $100,000 needs $500,000 at retirement (65).

    Remple’s Calculation:
    Household earning $80,000 needs $1,250,000 at retirement (65).

    Of course more is always better, especially when it comes to money, however, attaining more is a difficult feat.

  113. SST on February 16, 2013 at 1:13 pm

    When do you address RRIFs, Ed?

    Average Canadian life expectancy is ~82 years of age.

    (The current population is comprised of 2% of people aged 85 or older; projections shoot this number out to 4%.)

    *Your* “average” couple retiring at 65 with $1,250,000 in their RRSP will withdraw $50,000 gross income for six years.
    Starting at age 71, after RRIF conversion, their federally mandated minimum withdrawal rate will be $92,000+ in gross income.

    That’s an increase of 84% in gross income for the last 65% of their retired lives. Also an increase of 155% in taxes.

    Perhaps this over-abundance of money is needed to pay for care facilities and the like. As the Heart & Stroke Foundations says, “the average Canadian will spend their last ten years in sickness.”

    Or the couple could save $700,000, roughly half of what you suggest, enjoy their “good” years and the fruits of their labour with the extra cash, and when they hit 71, only have to keep withdrawing a steady $50,000.

    In this static scenario there will be RRSP capital draw-down to ~$550,000, with RRIF funds running out at age 83 instead of leaving ~$750,000 unused in the bank at average time of death, if subscribing to the “huge nest egg” theory.

    Becoming a millionaire: 99% failure rate
    Living to 85: 98% failure rate

    Don’t believe the hype and enjoy your money while you can.

    (Be free to correct all tax/RRP calculations.)

  114. SST on February 18, 2013 at 2:56 am


    The Great Mutual Fund Rip-off:

    “…the highly flawed mutual fund industry is taken to task for fees and sales practices that do not benefit the investor — in fact, quite the opposite.”

    Oop! Is that the Emperor I see? :)

    The full paper:

    “…payments to mutual fund brokers may skew brokers’ incentives. This paper is the FIRST to examine whether this occurs, and if so whether it affects consumers’ welfare.”

    For a so-called Capitalist society, the general public is woefully (and dangerously) under-educated in finance.

    Don’t believe the hype.

  115. Ed Rempel on April 29, 2013 at 12:06 am

    Hi SST,

    If you have an intelligent comment to make on the topic, I’ll address it. Whenever you make comments implying I am biased or “Don’t believe the hype.”, I take that as you ran out of intelligent comments on the topic.

    Your latest post about the mutual fund industry is obviously your intention to make a point against me without an intelligent argument on the topic.

    I can tell you that all our clients can see their actual rate of return after fees in total, by account or by fund online daily. We disclose every fee in detail to clients. In addition, we are one of the only financial planning firms in Canada that writes a custom, professional comprehensive financial plan for every client. We disclose and earn our fees and our clients are generally able to outperform indexes in the long run after all fees, including the cost of preparing the financial plan.

    There will be a lot of talk in the media about fees in the next while and I’m looking forward to it. There will be new rules that will make it difficult for most of our competitors.

    If I can make a personal plea to you, SST, nearly all your posts have an angry rant feel to them. I don’t sense that you are trying to seriously address the topics. Your posts usually comes across like you are searching hard to find anything to discredit my opinions. FT has deleted your most blatant personal attacks, but honestly most of your posts come across to me as a personal attack, not as an serious attempt to discuss a topic. You come across as against everything, but rarely state what you actually believe.

    I usually ignore and don’t even read most of your posts. When I read them, any post that implies I am biased or comes across as a personal attack, or just an angry rant – I will not respond to.

    Your last couple of posts on other threads show some attempt to discuss the topic. You do seem to have quite a bit of knowledge. I welcome some real debates with you.


  116. SST on May 12, 2013 at 11:28 am

    Apologies for the delayed response; I have lots of things on the go when summer hits!
    (this might not be exceptionally coherent as it is rushed! Life goes on…)

    “If you have an intelligent comment to make on the topic, I’ll address it. Whenever you make comments implying I am biased or “Don’t believe the hype.”, I take that as you ran out of intelligent comments on the topic.”

    Sorry, let me reword that for you:
    Don’t believe the marketing/advertising/promotion.
    Are those words more “intelligent” for you?

    Yes, you are most definitely biased, Ed.
    Anyone who has a vested interested in any product is biased.

    Anyone who pens an article extolling the virtues of a product and closes with a link to his website which sells that very product is indeed conducting hype/marketing/advertising/promotion.

    “Your latest post about the mutual fund industry is obviously your intention to make a point against me without an intelligent argument on the topic.”

    I was merely the messenger, thanks for shooting.
    Perhaps you could take up your disappointment with the academic authors of the paper and forward your thoughts about their lack of intelligent arguments and research on the topic.

    “If I can make a personal plea to you, SST, nearly all your posts have an angry rant feel to them. I don’t sense that you are trying to seriously address the topics. Your posts usually comes across like you are searching hard to find anything to discredit my opinions. FT has deleted your most blatant personal attacks, but honestly most of your posts come across to me as a personal attack, not as an serious attempt to discuss a topic. You come across as against everything, but rarely state what you actually believe.
    I usually ignore and don’t even read most of your posts. When I read them, any post that implies I am biased or comes across as a personal attack, or just an angry rant – I will not respond to.
    Your last couple of posts on other threads show some attempt to discuss the topic. You do seem to have quite a bit of knowledge. I welcome some real debates with you.”

    It really is nothing personal, Ed.
    If it were our host, FT, posting the same, I would reply the same. You would be hard-pressed to locate a discouraging word from me in your tax articles. Tax is more black-and-white than investing, and I’m sure you are very competent in that area.

    There seems to be a nature here of ignoring the unwanted.

    Here are few reasons why I rant against the information you present, Ed.

    The ideological:

    1) you eschew gold (and silver) as an extremely risky and terrible asset into which you and your company would never put money. Yet on your company’s website, you utilize gold and silver symbolism and imagery extensively in your main banner. Why?
    Obviously you must think gold and silver carry some value, at the very least some deep-seated intrinsic psychological value the general public has equating gold with wealth.

    You publicly hate gold yet use it as a marketing tool in hopes of making your company more profit.

    Hypocritical business practice, at best; schizophrenic, at worst.
    Why would I ever give money to a “professional” who is at odds with himself?

    (Not only that, but to rave of the long term power of stock performance over gold, yet bluntly ignore the fact that for the last 40+ years, the top 500 public global companies in America could only eke out a sub-2% return over gold. That’s a hell of a lot of expensive and complex work for extremely little return over that of a simple shiny rock.)

    2) your commercial website claims “We want to make sure that you have the right diversification of assets so that your portfolio will meet your long term goals.” Yet there is zero diversification because you personally state “In my opinion, the best investment strategy is to be a buy and hold investor (to be fully invested) all the time.” If a person has 100% of their investable assets in stocks/mutual funds, then there is is 0% diversification.

    Again, schizophrenic business practice.

    The fundamental:

    3) you claim the average couple needs over $1,000,000 in order to retire.

    **1% of Canadian citizens have a liquid net worth of $1 million or more.**

    **According to current Canadian retiree stats, the median portfolio is approximately $300,000.**

    But don’t worry, Ed, you are not alone.
    I see the TD bank has re-upped the ‘$1,000,000 to Retire!’ mantra in their new hyp…oop…advertising campaign:

    4) you claim the only way to achieve that goal is to be FULLY invest in stocks (or your mutual funds).

    Exceptionally few millionaires have gained their wealth via the stock market alone. Most, such as FrugalTrader, use the stock market to augment their net worth. I would make strong bets that no Canadian millionaire has 100% of their liquid assets in stocks, let alone mutual funds.

    I’ve made a list of all the true-blue millionaires I know personally, as well as through one degree of separation; comes out to a dozen.
    Exactly ZERO of them made their first liquid million via stocks. It was accomplished through business creation/ownership and/or salary.

    Again, you fail to acknowledge the heaps of data which go against your 100% stock portfolio theory. The Permanent Portfolio, with 25% in equities, is one. Heck, even the above TD promotion assumes only a 50% stock allocation to reach $1,000,000.

    You continually ignore the measured mathematical FACTS which dust both previous points.

    I can only assume you repeatedly promote an investment goal which is unattainable, and a deficient investment path, in order to gain the most for you and your company. If a client has to turn over 100% of their assets to you for a couple of decades, that brings in a lot more fees than 50% for a few years.

    5) you make patronizing statements such as “Most Canadians are scared to have $1 million in the stock market and will never get anywhere close”.
    It’s the investor who is the weak link, is it, Ed?
    The markets and the financial industry and financial professionals all function flawlessly and lawfully? The real reason only 1% of Canadians have $1 million of liquid assets is because the other 99% is too scared to be wealthy?
    How about I make a statement that the reason the other 99% are not millionaires via the stock market is because the financial industry and its employed are inept. One is just as valid as the other.

    As for what do I actually believe…

    I believe in facts and math.
    I believe in using reality-based analysis.
    I believe there is a time and place for each true asset class.
    I believe the stock market is most definitely not the silver bullet.
    I believe a true money manager is unbiased and has no vested interest in the direction he sends a client’s money.

    Perhaps I should make a personal plea to myself and side-step any and all “investment” articles penned by E. Rempel.
    But then I too would be guilty of conscious ignorance.


  117. Ed Rempel on May 20, 2013 at 1:16 pm

    Hi SST,

    First, I need to point out that I have a financial planning practice that often recommends high allocations to equities because I firmly believe in equities (not the other way around). I have 4 book shelves full of books on equities and financial planning. I believe everyone needs a proper financial plan, everyone needs genuine professional advice, and most people need a high allocation to equities to have the best chance to achieve their life goals.

    My personal investments have been 100% equities for the last 20 years (other than personal use assets and my practice). I invest only with the same fund managers I recommend for my clients (adjusting for risk tolerance).

    In your case, you believe in gold and private equity. You must invest in those areas. Then you write favourably about them here, because you believe in them – not because you make money from those investments. The same is true about me.

    Regarding your other points:

    1) I don’t hate gold. I think it is pretty. I wouldn’t invest in it, because I think it is purely speculative. I prefer to invest in things with fundamentals. We could close every gold mine in the world for 100 years and it would not matter. We have more than enough gold.

    Gold is a measure of fear. Fear has been high. However, I have been forecasting for several years that fear will be lower at some point in the future and then gold will likely collapse. It may be starting that now.

    Gold is not a proxy for inflation. Morningstar lists the correlation of gold to inflation between -.23 and -.31 for the last 5, 10,15, 20 and 25 year periods. That’s negative correlation. Gold actually goes down on inflation and up in times like now when there is little inflation.

    In short, I don’t believe the gold bugs’ arguments and see gold as highly speculative.

    I had a marketing guy design my web site and he picked some pretty colours that he thought were appropriate. I’m in the process of having a new marketing guy redesign my web site. He has picked different colours this time.

    2) I believe highly inequities and invest 100% in equities personally. However, that is not appropriate for everyone. The right allocation varies depending on risk tolerance and life goals.

    3) People needing $1 million or more to have the retirement they want is based on personal experience.

    My team and I have prepared custom retirement plans for thousands of Canadians. We look at what they spend today and adjust every expense to the lifestyle they want in retirement – down to how much they want to spend on travel, entertainment, what cars they will buy, etc.

    These retirement plans are usually not grand. Most of the time, it is maintaining their current lifestyle, less the mortgage and the kids costs, plus more travel, entertainment and spending money.

    Then we project the future cost of that lifestyle and figure out the nest egg they will need to have the retirement they want (assuming a rate of return appropriate based on their risk tolerance).

    Most of our clients that are in their 30s and 40s now end up needing more than $1 million to have the retirement they want. Remember, this is in future dollars. The cost of living will likely have roughly doubled by then.

    4) Your argument here is actually irrelevant. I’m talking about ordinary people today that want a specific lifestyle in retirement and what they have to do to get there.

    They will need an investment that gives them a strong and relatively reliable long term return. Most of the time, we find they need a long term return of 7% or 8% per year to achieve their life goals. If they make less, then they would have to invest a lot more from their cash flow today.

    I believe that equities are the most reliable way to make a long term return high enough for them.

    5) Again, your argument here is intellectual and not really relevant to the topic.

    From experience working with many people and their money, the most challenging problems are often emotional and behavioural. What do I recommend for someone that needs to eventually have $1 million in equities to afford the lifestyle they want in retirement, and yet they would be very uncomfortable with $1 million in equities? It’s a challenging issue for me that requires education and helping clients make informed decisions.

    The biggest behavioural issue is people being scared to invest after market crashes – which are the most important times to be invested. This is another serious issue for us. We are spending time now during the good times preparing our clients for the inevitable next market crash.

    It’s these behavioural issues that are usually the most serious risk to mess up a retirement goal.

    My point is that my opinions are not purely intellectual opinions.My views on financial planning and retirement are based on the reality of actual people I talk with every day.


  118. SST on June 19, 2013 at 10:31 pm

    As per the CBC (via RBC):

    “Canada had 298,000 HNWIs [in 2012].
    HNWIs are defined as people who have investable assets of $1 million or more, excluding primary residence…”

    REAL millionaires counted 298,000 out of 34,880,500.

    That’s 0.85% of Canadians.
    Wow. Looks like my 1% was far too generous!

    Tell us again,Ed…where are all the people with “huge nest eggs”?

    Where are all the Canadian millionaires the financial industry has created over the last 30, 40, 50 years?

    Oh, and then there’s this:

    “…total wealth held by HNWIs was kept in cash [28 percent], followed by equities (26 per cent)…”

    Certain financial “professionals” tell us to be 100% fully invested in the stock market and/or mutual funds, yet the people who actually are rich have only 26% in paper equities.

    Who are you going to believe, the people with the money or the people trying to sell you stuff?

    Anyone buying into the 99% failure rate “dream” will get what they pay for. Just a shame that it’s still legal to hawk such swindles.

    All retorts welcome.

    p.s. — thanks CBC/RBC for upholding my claim. Yet somehow it’ll still be rubbish. ;)

  119. SST on July 4, 2013 at 9:36 pm

    Still searching for where all the huge millionaire nest eggs are, created out of the last 60 years of stock market growth and earnings.

    Having trouble….

    The above report states Canadian HNWI population has grown ~6.5% annually over the last three years (~1% general population growth).

    Assuming this rate to continue unabated, by 2060 there should be about 6 million millionaires in Canada, out of a population of about 57 million = 10.5% of the Canadian population will be millionaires in 2060.

    Nice theory.

    Thus, after 50 years of stock market shenanigans, there is a ~1% millionaire population in Canada. After the next 50 years of being
    “all-in” the stock market, there will be ~10% millionaire population.

    The math spells it out — 100 years of stock market dividends and growth and earnings and other fancy schmancy industry jargon will produce only 1/10th of the population with a $1,000,000 nest egg.

    Still believe the stock market will make you a millionaire?

    Looking forward to the next advert.

    Happy July the 4th!

  120. SST on July 6, 2013 at 3:50 pm

    According to the RBC report, only 0.85% of Canadians have $1 million or more in investable assets, with ~37% of this being in stocks. Meaning, for a true $1 million “huge nest egg” in stocks, investable net worth would need to be around $2,750,000.

    According to the report, roughly 43% of millionaires have $1-5 million. If we halve this again (for the sake of ease and lack of distribution data), we would get ~78% of millionaires with the means to have a $1,000,000 “huge nest egg” in stocks.

    Thus, only 0.6% of Canadians have achieved what this article’s financial industry “professional” author has claimed to be completely within the realms of reality.

    The “all-in” strategy has a proven long-term failure rate of 99.4%.

    Don’t believe the hype.

  121. SST on July 6, 2013 at 4:02 pm

    Edit: grave error due to mislabeling:

    According to the report, roughly 90% of millionaires have $1-5 million. If we halve this again (for the sake of ease and lack of distribution data), we would get 55% of millionaires with the means to have a $1,000,000 “huge nest egg” in stocks.

    Thus, only 0.47% of Canadians have achieved what this article’s financial industry “professional” author has claimed to be completely within the realms of reality.

    The “all-in” strategy has a proven long-term failure rate of 99.5%.

  122. SST on July 8, 2013 at 10:49 pm

    re: #117 “Most of our clients that are in their 30s and 40s now end up needing more than $1 million to have the retirement they want. Remember, this is in future dollars. The cost of living will likely have roughly doubled by then.” — E.R.

    Thus, a future $1,000,000 “huge nest egg” thirty years from now equates to a current $500,000 “huge nest egg” today.

    A 2012 industry study estimated there to be 594,000 Canadian households with $500,000-$1,000,000 in investable assets in 2010 (average of $730,000).

    The 2011 Canadian census recorded 13,320,615 households (average of 2 people per).

    This gives us a result of 0.88% of Canadians with an average $730,000 nest egg = $1.46 million future huge nest egg (~20% more than Ed’s example).

    Sure, years/data skirt a bit, but you get the general gist.

    In Ed’s #3 example, he pushes the sale by telling us today’s average family (aka household) needs a $1.2 million retirement nest egg to sustain their current life style. As above, cutting that future nest egg in half (remember, living expenses will have doubled) gives a current nest egg of $600,000.

    But…only 0.88% of the Canadian population has achieved this standard over the last 30 years — an era which included the greatest bull market of all time, the greatest credit expansion of all time, some of the greatest innovation and growth of all time, the greatest financial frauds and crimes of all time….and not even 1% of the population could attain a “huge nest egg”.

    Further more, I’ll be the awesome guy that I am and throw in all the true-blue millionaires: ~1.75% of the Canadian population currently owns $500,000 or more of investable assets.

    Does anyone really think this trend will be surpassed by a great margin any time in the future? If so, forget mutual funds…I’ve got a bridge for you….

    Not only that, Ed, but I am assuming licensing prohibits you from operating outside of Ontario, correct? A 2006 industry study found 45% of Canadaian millionaires reside in Ontario, but I’ll give you 50%.

    Chances of the article’s author making you a true millionaire and/or a ‘nest egg’ millionaire with mutual funds, now or in 30 years, just dropped to 0.875%.
    Odds of winning $20 in the Lotto Max: 1.4%.

    [side note: annually, ~1% of all new millionaires in Canada are produced from lotto winnings. Your chances are now even less than less.]

    It’s not my website, but how long will financial industry propaganda be allowed to trump mathematical fact?

  123. SST on July 9, 2013 at 9:39 pm

    Another gem from RBC:

    “According to RBC…those who are not yet retired have significantly reduced their retirement savings goal…to an average of $564,000 in 2012 from $778,000 in 2011.”


    Guess maybe people are cluing in that it’s near impossible to amass a “huge nest egg” of $1,000,000+ (and/or $778,000) and have decided to take a step into reality. Good for them.

  124. Lombard on July 10, 2013 at 8:25 pm


    Are you just on Ed’s case because he says amass “huge nest egg” or the financial industry in general? If it is the latter then where else have you been spreading the facts?

  125. SST on July 10, 2013 at 9:43 pm

    Dear Lombard,

    I send plenty of correspondence into the ether.
    As a matter of example, I’ve unleashed my niceties to upper-upper management and other appropriate channels of the TD bank corp. concerning their recent ‘$1,000,000 Retirement’ advertising campaign.

    Am I on Ed’s case?

    Interesting how a financial industry “professional” can pen an article extolling the musts of retirement based upon a $1 million-plus “huge nest egg” in stocks (as well as being “all in” stocks), accompanied with links to his mutual fund selling company…and that’s A.O.K. with the hoi polloi.

    Yet when a person delivers facts and data disproving the industry-standard propaganda, said person is deemed to be “on X’s case”.
    Some of us choose not to consciously ignore truth, no matter how unpopular.

    Perhaps if YOU could present more than 1 or 2% of the Canadian population which has amassed $500,000 or more in investable assets — even better if it’s ALL positioned in stocks — then I might ease up on the near-impossible peddlings of financial industry “professionals”.


  126. SST on July 28, 2013 at 1:28 pm

    A professional POV substantiating the factual claims:

    The Royal Road To Riches — James Gruber

    “The stock market can certainly play a part in generating wealth but SIMPLE MATHS dictates that it’s HIGHLY UNLIKELY to make you rich enough to retire early.”

    “The real road to riches can instead found through earning income rather than investing in assets. By this, I mean earning through excelling at your workplace or, more likely, starting a business of your own.”


  127. MoneySheep on October 26, 2013 at 11:35 pm

    Asset Management Fees are the greatest invention by financial service industry. It is a thievery in plain sight. Yet, these predators have persuaded the average joe that “it is normal for wolves to keep watch of hen house.” It is moral hazard at its best, they use your money to play at no risk to them; if there is a loss, they are not responsible for it. Worse, they charge you for it.

    If you have $1 million, a 2% fee is $20,000. You want to be the one who spend that $20,000 in retirement. By giving that $20,000 to the predators for just by watching, you guarantee the predators’ retirement.

  128. SST on October 27, 2013 at 1:30 pm

    @MoneySheep — reminds me of the classic book ‘Where Are the Customers’ Yachts?’ by Fred Schwed (yes, his real name). It was written over 70 years ago(!) so this dog and pony show is not anything new. Well worth a read.

    and: “…they use your money to play at no risk to them; if there is a loss, they are not responsible for it. Worse, they charge you for it.”

    This, even more than your ill will towards fees, is another great invention of the finance business: the government sanctioned blanket disclaimer.

    If the industry is so sure of what they sell/create, then why the need for a disclaimer to absolve any and all accountability?
    (If you ever do visit a financial advisor, ask him/her this question.)

    Imagine your mechanic* told you that he will try to fix your car but he might not do as good a job as he did last year, and, in fact, he might just make your vehicle operate even worse, but you will still pay him full price. Would you leave him your keys or would you drive away?

    Imagine you were taking a nice vacation to Italy. The pilot* comes on and announces that he will be flying you to Italy…at least he will try to get you to Italy. He continues by stating that he could end up in a completely different location, Poland perhaps, and there was always the chance that he might just crash the plane. And even if he does manages to land in Italy, your luggage may or may not. He concludes by saying he’s not legally responsible for where you or your bags eventually end up. Enjoy the ride!

    [*insert any field of work into the examples]

    About the only other “industry” which operates on the same basis, but without the disclaimer, is the government. But that is a different issue.

  129. SST on January 12, 2014 at 3:04 pm

    Index Funds Beat 99.6% of Mutual Fund Managers Over Ten Years
    (US-centric but I’ll assume mirrored in Canada)

    Still think mutual funds are going to make you a “huge nest egg”?

    Others view the financial industry marketing machine in much the same way (“Freedom 55” anyone?):

    “However, the resources of the financial services industry generated by fee income will continue to fund mass-media advertising/propaganda in the ongoing attempt to convince the top next 19% that they can “beat the market” if only they turn over their savings to the industry to “manage”. Little do most “investors” know that they are funding the perpetuation of the industry’s fraud, their own underperformance, and failing to match risk-adjusted returns of cash and fixed income after fees, taxes, and inflation over a cycle.

    Now, imagine what would happen to the financial services and banking industries and financial print, broadcast, and online media were these unsanitized facts about dismal money “manager” performance to be widely reported and internalized by a significant minority or small plurality of investors or the public at large.”

    Remember, stay fully invested!

  130. Ed Rempel on January 14, 2014 at 12:34 am

    Hey SST, that is the stupidist article I’ve seen in a long time. Only 10 of 10,000 fund managers CONSISTENTLY beat the S&P500? Why is CONSISTENTLY relevant? The S&P500 didn’t CONSISTENTLY beat my chequing account. :)

    A little education here. The index industry uses the word CONSISTENTLY to set a ridiculously high bar to try to inflate the success of indexes. Any article that uses the word CONSISTENTLY is irrelevant to investing.

    If you look at the screens they used in the article, you can get a good laugh. It is not 12-year return vs. index. It is a series of screens that includes only low-fee managers, and will screen out funds that don’t beat the index in both big up and big down markets. It does not measure returns vs. the index at all!

    There is a flaw with recommending index funds. The average mutual fund is irrelevant. All I have to do is find one mutual fund manager that I can identify ahead of time that beats the index over time.

    We have only used one U.S. equity fund in the last decade. Since inception, January 1, 2001, it has had 4 times the growth of the S&P500 (after all fees). It only beat the S&P500 in 8 of 12 calendar years, so not CONSISTENTLY, but it had 4 times the growth!

    This fund manager also paid the full cost of having a financial planner – and still had 4 times the growth. He is quite brilliant and works hard. I would take him over the S&P500 any day.


  131. SST on January 14, 2014 at 1:02 pm

    “[Thou] doth protest too much, methinks.” ~ Shakespeare

    Arguing vehemently against the terminology of one stupid methodology yet utilizing the equally irrelevant terminology (“The growth of the stock market has been quite CONSISTENT if you invest long term.”) in an opposing stupid methodology is, well, stupid.

    Perhaps another study (by a Princeton/Stanford MBA & CFA) which grants your vocation much more success:

    Only 24% of Active Mutual Fund Managers Outperform the Market Index (2002-2012)

    “Only 21% outperformed the index by a statistically significant amount…the truth is probably even more dire…survivorship bias implies that index fund returns are even more superior to active fund returns than the numbers indicate.”

    You say the average mutual fund is irrelevant because you can find an index-beating “All-Star” manager.
    I say your manager is irrelevant because I can find manager-beating investments.

    Your hand-picked manager, quadrupling the total returns of the S&P 2001-2012 would give him an annual average of 10%.
    Gold, that riskiest and most useless 6,000 year-old investment, returned 43% annually — quadrupling your manager’s growth.
    (the GLD ETF returned 33.5% from inception 2005-2012; -current 18.5%/yr)

    Apples to oranges to bananas.

    I’m no fan of most of the financial industry; all I gotta say, Ed, is where are the “huge million-dollar nest eggs”, mutual fund-made or otherwise?

    Good laugh, indeed.

  132. Ed Rempel on January 14, 2014 at 7:41 pm


    “Huge million-dollar nest eggs” mutual fund-made are very common.

    You may not know these people, but I know many.


  133. SST on January 15, 2014 at 11:39 am

    “Very common”?

    Even ignoring all statistical facts gleaned from multiple sources, millionaires are NOT “very common” — 1% of Canadians — thus making those created via mutual funds even more rare.

    Perhaps you and I hang out in different millionaire circles.
    The ones I know have all made their cake through business ownership and/or employment income: finance (3), lawyer, engineer (2), automotive (2), restauranteur (2), real estate.

    Also interesting to note, even though you advertise on MDJ (paid and free), and link to this site on your company website, the proprietor, FrugalTrader, owns no mutual funds. Why that is?

    Could it have something to do with consistency?

  134. SST on January 16, 2014 at 11:53 am

    The CSA’s 2012 report shows 55% of Canadians own securities outside of their company pension plans, with 62% of those owning mutual funds = 34% of Canadians own “independent” mutual funds.

    Applying that to the 10% of the 1% (0.1%) of Canadians who achieved a million dollars in investable assets via public equities alone, gives us 0.03% of Canadians who have become mutual fund millionaires or roughly 10,000.

    Sure, a few others may have a million dollars in mutual funds but those were built primarily upon contributions, not returns (see FT as an example).

  135. Goldberg on January 16, 2014 at 2:14 pm

    Its highly misleading to say someone became a millionaire from mutual funds. It sounds like someone invested $20,000 and five years later, voila! But start a successful business, and five years later, voila! $1m saved, that’s possible.

    At the end of the day, the variable is time. Do you want your million at age 40 -50 or do you want it at age 70-80… and how much is inflation making that million much less in real value 40-50 years from now anyway????

    If you want a real million, time for compounding is not your friend…mutual funds are not the way to go… you need a business or a high income/high savings… but if you just want a million that will buy $400k of stuff in 40 years of inflation, then yeah, 8-10% a year is sufficient.

  136. SST on April 8, 2015 at 9:38 pm

    Something which I don’t think has been addressed regarding the following statement:

    “At retirement…they want at least $50,000/year before tax…you would need $1.25 million so that you can take out 4%/year…My point is that financial security comes from having a large portfolio, say $1 million or more.”

    If a couple were to invest a small amount in Dividend Aristocrat et al stocks and reinvest the dividends for let’s say 30-35 years, their dividend yield in retirement could easily pay out $50,000 on the back of a portfolio worth well below $1 million.

    More ways than one to skin a cat! :)

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.