I enjoy reading the Globe & Mail’s Financial Facelift every weekend, if only just to goof on the idea that a couple earning $200,000+ per year with $3 million in the bank can be worried about their financial future. The tipping point of absurdity came when the Globe profiled Eric and Ilsa, the Vancouver couple struggling to get by on $25,000 per month.

This week’s feature was no different than usual. The couple had more than $2.5 million in assets, no debt, and income of $187,000 per year. A typical financial facelift profile (you’ll be fine, Tina). What caught my eye this time was the advice from the financial planner asked to weigh in on the couple’s situation.

Financial Facelift Edition

The planner questioned the couple’s asset mix, which included a large amount of cash (30 percent of their portfolio) that is “creating a substantial drag on portfolio returns.” The planner goes on to say that, despite their modest investment returns, the couple will have an estate of $3.3-million at Tina’s age 90.

Then came this bizarre recommendation:

“For the fixed-income side of the portfolio, he suggests supplementing traditional fixed-income securities with some alternative income investments such as private debt, international real estate and accounts receivable factoring.”

He said by improving their investment returns the couple could retire “tomorrow” instead of in four years, as originally planned. That may be true, but a recommendation to put 20 percent of their portfolio into these alternative strategies is completely unnecessary and risky.

What purpose does it serve to complicate their investment approach? They could’ve stuck to their simple, risk-averse plan and been just fine.

But what happens all too often? The planner talks over their heads with some smart sounding strategy – that of course they couldn’t possibly attempt on their own – and suddenly the couple is paying 1 to 1.5 percent of their assets every year for ‘professional guidance’ that probably wasn’t needed in the first place.

In my experience, when a couple has more than enough money to last a lifetime, it’s better to dial back the risk and accept a lower rate of return. Not complicate matters by taking on riskier assets that the couple likely doesn’t understand.

To me this is a case of the planner trying to get too cute with this financial facelift instead of telling the couple what was painfully obvious to everyone else – they’ll be fine.

This Week’s Recap:

This week I shared the math on how much my defined benefit pension plan will pay in retirement.

My Smart Money column in the Toronto Star looked at five lessons learned about booking Aeroplan flight rewards.

Many thanks to Ruth Saldanha at Morningstar for including my comments in this piece on investing in an RESP.

Promo of the Week:

A reminder to get your free ticket to watch me and 25+ Canadian personal finance and investing experts speak at the Canadian Financial Summit. Watch this all-star panel online from the comfort of your couch from September 12-15.

Guaranteed to be something for everyone with topics on financial independence / retire early (FIRE), investing, credit card churning for travel points, how to cut through financial jargon, busting financial myths, and much more. Don’t miss it!

Weekend Reading:

Call it the chart of shame. It’s the S&P 500 versus everyone who said the market was about the crash.

Is it okay to retire with debt? CFP Jason Heath looks at the options in this MoneySense article.

Rob Carrick says the long, dark night for GIC investors and savers has finally come to an end.

New research presents alternative methods, like robo-advisors, to manage retirement income.

PWL Capital’s Ben Felix looks at factor investing in his latest Common Sense Investing video:

Can you imagine a world in which mutual-fund managers pay investors an annual fee – rather than the other way around? That may not be as far-fetched as it sounds.

Nick Maggiulli, Of Dollars and Data, explains what will always be true for investors: You cannot have more reward without taking on more risk.

A 90-year-old ‘grandma scam’ victim took out $10,000 from TD Bank to pay a fraudster — in cash.

Dan Bortolotti looks at ETFs or index mutual funds – which one is best for an RESP? For what it’s worth, I use TD e-Series funds for our kids’ RESPs.

Younger investors, here’s how to get fee breaks and other little-known perks at online brokers and robo-advisers.

Michael James says that seniors staying in homes they can no longer maintain or get around safely in is a problem.

An American visual, but interesting nonetheless. The cost of 30 common American grocery items over 10 years.

Finally, meet Paul Singer, doomsday investor and head of Elliott Management who has developed a uniquely adversarial, and immensely profitable, way of doing business.

Enjoy the Labour Day long weekend, everyone!

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12 Comments

  1. Brian L on September 2, 2018 at 4:49 am

    What irks me about Financial Facelift pieces in the Globe is the piddling amount allocated to charitable giving in many of the cases.

    • Robb Engen on September 2, 2018 at 8:57 pm

      Hi Brian, that’s a great point. Charitable giving is very personal and so I wouldn’t be surprised if the amounts and recipients are not always fully disclosed in these cases. But, you’re right. More attention needs to be paid to giving back to worthwhile causes, both local and abroad.

  2. Rich on September 2, 2018 at 7:49 am

    I agree with your comments. I think there is an opportunity here to provide a more reasonable financial facelift for readers. Robb?

    • Robb Engen on September 2, 2018 at 9:01 pm

      Hi Rich, I’d love to take a crack at it. The trouble is finding people who don’t mind sharing their complete financial picture.

      Any takers? Send me an email through the ‘contact us’ page.

  3. Jan on September 2, 2018 at 8:30 am

    I had the same reaction when i read this weekend’s financial facelift. What’s wrong with large cash reserves in your sixties, especially when you have a substantial investment portfolio? Alternate assets scare me so I wont touch them. Dont understand them either. Thank you for bringing this issue to your blog. It needs to be challenged.

    • Robb Engen on September 2, 2018 at 9:09 pm

      Hi Jan, thanks for sharing. I don’t think 30 percent cash holdings is unreasonable for this situation. They said they were nervous about the markets, which might not be rational but is understandable for a couple nearing retirement.

      I think if they streamlined their equity holdings and reduced their management fees by a half percent they could eke out another 1 percent return on their portfolio. His pension, plus CPP and OAS would cover the majority of their spending needs in retirement.

      It’s a nice idea to want to double their spending in retirement, but if they’re typically spending just $37,000/year I doubt very much they’ll become spendthrifts in retirement.

  4. Keith C. Cowan on September 2, 2018 at 10:06 am

    Yes the FA should have said: “Yes you guys are fine! Don’t listen to any smart-mouthed advisor!”

  5. fbgcai on September 2, 2018 at 9:26 pm

    Interesting infographic re food prices but one has to question the validity, as American cheese is measured in “gallons” ? Also the current prices, I’m guessing in USD, are unrealistically high – would love to know how the numbers were obtained.

    • Robb Engen on September 2, 2018 at 11:27 pm

      It is U.S. based. The source at the bottom of the infographic says it comes from the Bureau of Labor Statistics – pretty in-depth stuff here: https://www.bls.gov/bls/inflation.htm

      • fbgcai on September 3, 2018 at 9:12 am

        thanks – missed the tiny print:)

  6. Terry on September 3, 2018 at 6:56 am

    Hello Robb,
    I so enjoy your posts and articles, wonderful and informative.
    You mention complete financial face life above and that many people don’t wish to do or disclose? Why would that be?
    If the possibility of improvement is there that would create an upside and alternate point of view.
    Terry

  7. Owen @ PlanEasy.ca on September 4, 2018 at 8:04 am

    Yes! Why take on more risk than you need to!?!

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