Weekend Reading: Fort McMurray Edition

Our hearts go out to the residents of Fort McMurray who earlier this week were forced to abandon their homes and flee the city as a massive wildfire continues to devastate the northern Alberta community.

The fire, which is said could double in size by Saturday, has sent 80,000 evacuees to nearby work-camps, hotels, and recreation centres in one of the largest fire related evacuations in Alberta’s history.

The Alberta government will be providing $100 million in emergency funding to those who were displaced – about $1,250 for each adult and $500 for each dependent – in addition to matching donations made to the Canadian Red Cross. The federal government announced it would also match donations made to the Red Cross.

Please consider making a donation to the Red Cross in support of the Fort McMurray wildfire victims.

This week’s recap:

On Monday I presented 11 model portfolios to help simplify your investments.

On Wednesday Marie looked at the troubling addiction of shopping beyond your means.

And on Friday I took issue with a newsletter that said 30 year olds were financially screwed.

Why investors fail

If you’ve followed this blog for a while you must have heard of the behaviour gap – the difference between investment return and investor return. To illustrate this point I wanted to highlight a story I came across on the Motley Fool site:

The best-performing mutual fund from 2000 to 2010 was the CGM Focus Fund (CGMFX), which returned more than 18% annualized despite a flat S&P 500. The fund’s outstanding track record would have turned $100,000 into more than $500,000 over those 10 years. The only problem? According to Morningstar, the average investor in the fund actually lost 11% annually over those same very successful 10 years. That is not a typo: The fund gained 18% annualized, but its average investor lost 11% annualized. You’re not crazy to ask how that is possible.

 

The answer is that many fund holders tried to time the market. For example, the fund soared 80% in 2007, so hordes of investors poured money into it in 2008 — only to see it fall 48% that year. That decline led investors to pull money out in 2009, taking losses soon before the market soared from its low. Investors were making emotional decisions based on recent events, changing their stance repeatedly, and as emotion would have it, at the most inopportune times.

All the more reason to find an investment plan that works for you and stick with it for the long term. Accept that for a period of time your investments might lag other strategies, and resist the urge to take action on that information.

Weekend reading:

Berkshire Hathaway’s annual meeting has taken on cult status as investors flock to Omaha, Nebraska to listen to Warren Buffett spin his folksy wisdom. Nelson from Financial Uproar made the pilgrimage to see the Oracle of Omaha in the flesh, stay in an overpriced hotel, and pick up some Berkshire swag.

Buffett used a good portion of his time explaining why investors would be better off ditching expensive money managers and consultants.

Here’s a good recap of the gospel according to Warren Buffett, courtesy of the Evidence-Based Investor blog:

“Supposedly sophisticated people, generally richer people, hire consultants, and no consultant in the world is going to tell you, ‘just buy an S&P index fund and sit for the next 50 years.’ You don’t get to be a consultant that way. And you certainly don’t get an annual fee that way.”

It’s not just Buffett who’s beating the low-fee drum. New research from Morningstar says that the expense ratio is the most proven predictor of future fund returns.

A nice story on the My Own Advisor blog about a reader who found success through passive indexing.

A new report released by the Fraser Institute claims there is no direct relationship between the rates of return earned in the CPPIB (Canada Pension Plan Investment Board) and the benefits received by eligible retirees.

Michael James answers a reader question about changing asset allocation towards a higher risk portfolio.

What about switching from TD e-Series funds to ETFs? Canadian Couch Potato weighs-in on this question.

Are Fort McMurray homes insured for fire? MoneySense investigates.

An outrageous story about how the federal government is gouging car buyers for money never spent: making dealerships collect taxes on ‘rebates’.

The Globe and Mail’s John Heinzl puts his dividend column aside to explain how to save thousands, and live longer too, by ditching your car.

Are Millennials doomed in a lower return environment? Ben Carlson explains:

“No one has control over the market’s performance over their lifetime, but you can control your personal savings rate and how you handle your biggest asset — human capital.”

The longest bear market wasn’t in 1929 or 2007 but started in January, 1973. Here’s the worst bear market that nobody ever talks about.

How TV host, speaker, and author Bruce Sellery invests his money.

This blogger’s personal budget has saved her thousands of dollars.

Bridget from Money After Graduation says the future you are saving for doesn’t exist.

Finally, Adam Mayers was busy at the Toronto Star writing these gems:

• One snowbird’s $35,000 travel insurance surprise.
• Canada’s stock markets are tiny in the global scheme of things, yet many investors refuse to leave home. Here’s why they should.
• In moments of crisis, the power of doing nothing.

Have a great weekend, everyone!