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!
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
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’.
I’ve written before how vehicle loans can be big source of financial misery for many families. It’s a problem that continues to get worse. According to a Bank of Canada report, one-third of consumers who trade in their old car for a new one owe more than their old car is worth. It’s a frightening statistic, but easy to see how this car trouble happens.
Car dealers attract new buyers by offering tempting monthly, bi-weekly, or even weekly payments (at “zero-percent” financing) that give the impression of affordability. Buyers finance the purchase over six, seven, or even eight years to keep their monthly payment low. After three or four years, the consumer gets itchy for another new car, whether through slick marketing from the dealer offering to buy back their old car, or to keep up with the Joneses.
The amount owing on the car loan at this point far exceeds the car’s resale value and so the dealer offers to roll the existing loan into the new one. The vehicle loan trap continues, and the consumer is far worse off – already upside down on the new car loan once they drive the car off the lot, plus the added burden of the old loan. And for what? A shiny new vehicle in the driveway that’s literally choking off your finances.
Over the years we committed two cardinal sins when it comes to car buying. First off, in 2007, we leased a new vehicle. Then, in 2012, we financed a new vehicle. But I was determined not to fall into the vehicle trap and so we bought out the first car when the lease expired, and paid off the new vehicle in just four years. Now we have two paid-off vehicles that are both in great shape and can hopefully be driven for another 5-10 years.
Do we get the itch to buy something new? Not really. While we were paying off our vehicles we couldn’t afford to make contributions to our TFSAs. Now that we’re car payment free we can afford to put $10,000+ into our TFSAs every year, and even catch up on unused contribution room from years prior. That gets me more excited than parking a new car in the driveway.
This Week’s Recap:
On Tuesday I explained how RBC’s new Payback with Points at Point of Sale now allows its customers to redeem their rewards points right at the cash register.
On Wednesday I wrote about kids and money and why we don’t tie their allowance to the completion of household chores.
And on Thursday I offered a renewed case for GICs as interest rates tick up. EQ Bank’s five-year GIC is at 3.50%.
Over on Rewards Cards Canada I reviewed the American Express Business Gold Rewards Card and how I got 40,000 Membership Rewards points for no annual fee.
Weekend Reading:
The internet is full of “life hacks” to accelerate results without putting in the work. Morgan Housel tears apart this advice and lists some of the only useful hacks he knows. Two of my favourites that apply to saving and investing:
Investing hack: Give compounding the decades it requires.
Savings hack: Lower your ego and live below your means.
A Wealth of Common Sense blogger Ben Carlson has some fun with this as well with his listing of ‘useless hacks’. Example:
How to get your personal finances in order: Try to keep up with your peers in terms of vacations, buying expensive toys, and spending. Envy is a great way to prioritize your spending habits.
Nick Maggiulli (Of Dollars And Data) says that in a world where one-quarter of Americans don’t read books and some people can’t even name a book, those that go out of their way to keep learning have an advantage. Those advantages, while small now, will compound and become massive over time.
Jon Boorman, a thirty-year investment industry veteran, shares 30 lessons learned from his three decades of work in the markets. The last one is a gem:
“When you’re young, you have so much time but never enough money. When you’re old you have money but never enough time.”
So true.
Investor advocate Robin Powell uses a neat scotch analogy to ask investors if they can truly stomach the risk they’re taking.
This week Michael James wrote about how his sons invest their money with a low-cost, two ETF index investing solution. Well done.
Real Estate Investment Trusts are interest rate sensitive securities but Gordon Pape explains why REITs are defying the odds and outperforming the S&P/TSX Composite this year.
In his latest Common Sense Investing video Ben Felix looks at institutional investing (university endowments and pension funds) and explains why even with access to the most brilliant financial minds and exotic investing strategies these funds would be better off taking a passive approach with their investments:
Rob Carrick says parents can financially suffocate their kids by helping them buy houses.
Finally, Million Dollar Journey blogger Frugal Trader shares his own immigrant family’s success story – from arrival to retirement.
Enjoy the rest of your weekend, everyone!