Weekend Reading: Catch Me If You Can Edition

I must have seen the movie Catch Me If You Can a dozen times over the years. I loved that Frank Abagnale went to work for the FBI after foiling them for so long passing bad cheques while posing as a pilot, doctor, and lawyer. Recently I came across a Google Talk with Mr. Abagnale, who is still at the FBI heading up their Cyber Crimes division.

He’s a fascinating man. In this hour-long video you’ll learn more about his adolescent life of crime, his redemption as a husband, father, and FBI crime-fighter, and what he sees as the future of cybersecurity over the next five years. Here are some interesting takeaways:

  • New technology coming to market will render passwords obsolete within 24 months.
  • Frank Abagnale never uses a debit card. He says the most secure form of payment is a credit card and that’s because you have zero-liability for any fraudulent activity while also keeping your money safe and secure. People who have had their debit card compromised can be out thousands of dollars while their bank and authorities investigate their case. With a credit card, simply cancel the card and have a new one sent to you within a few days.
  • Abagnale highly encourages co-signing or guaranteeing a credit card for your college-age children to help them build credit, keep tabs on their spending, and teach them about responsible credit use.

Here’s the video in its entirety:

This Week’s Recap:

On Wednesday I wrote about sh*t my advisor says as a way to capture some of the sad rebuttals my clients get when they want to break up with their advisors.

Next week I’ll look at the difference between financial advice and investment advice. Most people need the former, but think they want the latter.

Promo of the Week:

Boomer & Echo readers get their first $10,000 of investments with no management fees for a year when they sign up for their first account at Wealthsimple.

You can read my Wealthsimple review here.

Weekend Reading:

Budgeting apps like Mint require access to your banking information. Is it safe to use?

Rob Carrick explains why the savvier you are with money, the harder it will be for your family to make sense of your finances if you get sick or die suddenly.

Behavioural economist Shlomo Benartzi stresses the importance of trying new things to save a lot of money and discover your true preferences.

I’m a sucker for behavioural finance articles and this one gives you four ways to trick your brain into saving more.

People who saved enough money to travel for weeks or years say a ‘mini-retirement’ is just as rewarding as early retirement.

Here’s the Toronto Star’s Ellen Roseman on why planning can help you to make sure your retirement savings will last.

New research finds that when hedge fund managers pitch a stock at investment conferences and seminars, they end up selling that stock within the first quarter after praising it.

Young voices from the housing market discuss how their financial lives centre around the costs of their home:

“My wife and I have virtually ruled out the option of owning a home in Toronto. We are fortunate to live in a nice apartment with cheap rent in a desirable neighbourhood close to downtown. We want to maintain our professional mobility and the option of moving abroad or to a different city for work without being bogged down by a massive mortgage and we feel homes in Toronto are not materially and physically worth what they cost.”

The newly redesigned Canadian Couch Potato blog has a new podcast this week as Dan interviews real estate expert Ben Rabidoux.

History is riddled with investor after investor who couldn’t quit while they were ahead and eventually ended in ruin. Here’s why it can happen to anyone.

A Wealth of Common Sense blogger Ben Carlson explains why stocks generally go up over time.

Larry Swedroe smartly tackles some criticisms of passive investing:

“As sure as the sun rises in the east, the proponents of active management will continue to attack passive investing. The reason is simple: It threatens their livelihood. Thus, their behavior should not come as a surprise.”

RBC and WestJet have partnered on a new loyalty program called Ampli in hopes of winning over disgruntled Aeroplan users.

An insane look inside the offshore tax scheme that left iconic Olympian Donovan Bailey owing nearly $2.3 million in unpaid taxes.

Finally, an article that hit close to home for me at this time of year – How working parents can manage the demands of school-age kids.

Enjoy the rest of your weekend, everyone!

Sh*t My Advisor Says

Some investors eventually leave their commission-based advisors and opt to set-up a simple portfolio of index funds or ETFs on their own. There are plenty of compelling reasons to do so; the reduction in fees alone can save investors thousands of dollars a year, and academic research shows that the lower your costs, the greater your share of an investment’s return.

Related: Steak Knives, Yes. Financial Advice, Maybe Not

In my fee-only planning service, many clients end up doing exactly that. I always enjoy hearing the rebuttals from bank and investment firm advisors whenever they hear their clients want to move to a lower cost portfolio. Here I’ve tried to capture some of that conversation with, sh*t my advisor says:

Shit My Advisor Says

Sh*t my advisor says

Sexism: When my husband told him we’re choosing simple index investing and that I handle the family finances he smirked and said to my husband, “what credentials does your wife have to manage money?”

The real enemy: Our investment company is being vilified when the true villains are credit card companies with their interest rates.

Proof of concept: I have tons of clients with assets over $500,000 so I must be doing something right.

Working for free: My advisor told me she basically worked for me for free for the past eight years and accused me of dumping her just as my assets were growing.

It takes a professional: People think they can trade mutual funds or ETFs on their own but it’s not as easy as you think. Plus, you don’t have anyone like me to call up and ask if you’re doing the right thing. Re-balancing a portfolio is easy if you have the background, but doing it like you’re thinking about (indexing) is very tough without the training and knowledge.

What’s in a fee?: The fees are at 2 percent (Ed. Note: actually, 2.76 percent) because this isn’t just about buying and selling. We created a complete portfolio with you for your tolerance in the market and deal in actively traded mutual funds that most of the time outperform the market.

Nortel: ETF’s aren’t all that great. When you buy an ETF you buy the whole fund. In the late 90’s when Nortel owned 30 percent of the TSX it crashed. If you purchased that ETF you’d be down 30 percent too! But with a mutual fund you can’t buy that much. You are only able to purchase up to 10 percent of any one company. So you would have been fairly safe with the crash of Nortel.

Downside protection: If the market goes down 20 percent your ETF’s will too. You are much more protected with mutual funds.

Apples-to-apples: All of our fees are wrapped up together in our MER. We do not charge account fees, transaction fees, advisory fees, admin fees or fees for our service. It is just the MER.

Clairvoyance: The bond market has likely reached its peak and appears to moving in a different direction. The equity markets are very risky at this time. In my mind the only safe place left is guaranteed deposits.

Final thoughts

I’ve had some fun dumping on commission-based advisors, but the truth is that most of us do need some kind of advice when it comes to managing our finances. But a $250,000 managed portfolio at 2.76% MER will cost you $6,900 per year. That same portfolio of, say, TD e-Series funds costs just $1,050 per year.

What kind of added value do you get from your commission-based advisor for that extra $5,850 per year?

We need to get past this notion that an advisor can add value by picking superior investments that beat the market. The evidence is clear that a passive investment approach that tracks broad market indexes at a very low cost will outperform over the long term.

In that case, investment advice should be ‘commoditized’ enough by now that the lowest cost prevails. A good advisor, then, must provide value in other areas such as financial planning, goal setting, tax minimization, and optimal retirement withdrawals, to name a few. That’s advice worth paying for.

Can you afford to hire an independent, fee-for-service planner to help build you a complete financial plan and give ongoing advice throughout the year on all financial matters, not just investing?

Many advisors are simply salespeople working on behalf of their bank or investment firm. When choosing an advisor, you need to find one who has your best interest at heart, and who can bring something else to the table besides picking so-called ‘winning investments’.

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