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I *will* be a multi-millionare! @@@ Next Plan Details : May 15 @@@

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  • Jul 31st, 2009 8:45 am
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Newbie
Mar 18, 2009
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Many pundits are calling for 3-4% as being the norm going forward, and that of course is if we are only in an inflationary not deflationary environment going forward, then nothing performs.
[OP]
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Jul 30, 2003
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Sheky wrote:
Jul 8th, 2009 4:17 am
OP, I'd suggest you read Juggling Dynamite first.

It may open your eyes about mutual funds.
Sounds like - I am finally sold on MF and you are looking to make me a disbeleiver again? :)

I loved RICH DAD, POOR DAD

although Wealthy Barber is excellent and gives more in-deptyh practical info -I find it long - cuz don't care much for the story.
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Jun 24, 2004
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PrinceMS wrote:
Jul 8th, 2009 2:17 pm
Sounds like - I am finally sold on MF and you are looking to make me a disbeleiver again? :)

I loved RICH DAD, POOR DAD

although Wealthy Barber is excellent and gives more in-deptyh practical info -I find it long - cuz don't care much for the story.
Personally I think there are better ways to invest than with MF. Juggling Dynamite points out some of those problems with MF that I learned on my own, the hard way. I would strongly recommend you to go through that book before you jump into MFs. I sure as hell wish I had read it before I bought MFs.
Newbie
Jul 3, 2009
84 posts
Make sure you present value the total amount the financial planner said you would have upon retirement to take into account the time value of money. Remember a dollar tomorrow isn't worth a dollar today.

I hate how financial planners lure people into bad investment decisions using large future values based on ridiculous compounded annual rate of returns. Most people are amazed when their financial planner says you will be a millionaire if you invest with me for 40 years. They forget to take into account that a million dollars 40 years out will hardly be what its worth today. Especially if governments continue printing money the way that they currently are.

If it sounds to go to be true. It usually is.

my 2 cents.
[OP]
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Jul 30, 2003
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MoneyAndWealth wrote:
Jul 8th, 2009 6:52 pm
Make sure you present value the total amount the financial planner said you would have upon retirement to take into account the time value of money. Remember a dollar tomorrow isn't worth a dollar today.

I hate how financial planners lure people into bad investment decisions using large future values based on ridiculous compounded annual rate of returns. Most people are amazed when their financial planner says you will be a millionaire if you invest with me for 40 years. They forget to take into account that a million dollars 40 years out will hardly be what its worth today. Especially if governments continue printing money the way that they currently are.

If it sounds to go to be true. It usually is.

my 2 cents.

Yes I understand that - but a million is still a million. May not be able to enough to do EVERYTHING but I am quite sure it will be enf to live off comfy in 20-30 years.
Also, If you only get a mere million is better than alternatives
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PrinceMS wrote:
Jul 9th, 2009 10:27 pm
Yes I understand that - but a million is still a million. May not be able to enough to do EVERYTHING but I am quite sure it will be enf to live off comfy in 20-30 years.
Also, If you only get a mere million is better than alternatives
$1M in 20 years at 2.5% inflation gives only 610K present day value which, at 4% withdrawal, is only 24K/year gross income.

With slightly worse assumptions...
$1M in 30 years at 3% inflation gives only 411K present day value which, at 4% withdrawal, is only 16K/year gross income

Good luck living off either income stream....

When it comes to your future, you really need to do the math. It's never a good idea to simple assert things such as "I am quite sure..."
Jr. Member
Jan 27, 2009
177 posts
2 upvotes
As an industry professional, I'm a firm believer that there is NO better way to invest than mutual funds.

The whole Mutual Fund vs ETF battle is one that I will fight any day. That being said, a LOT of mutual funds hold Alpha (even after fees). For those not in the know, Alpha is a statistical coefficient used to measure an investment managers risk-adjusted-return over the benchmark he's trying to beat. If an investment has positive Alpha after fees, that means the fund manager attained a higher return than the benchmark without taking more risk.

This virtually means that EVEN after paying the managers fees AND trailing commissions to the advisor for his service, you are still getting value out of investing through active management over a "passive" investment like an ETF. So in the end, you are getting higher risk-adjusted returns and you are getting professional advice and service from an advisor AND a mutual fund management team. With an ETF you get nothing but trade confirmations and a 20$ trading fee. Plus, if you do the ETF gimmick, you have to continously rebalance by buying and selling different classes of ETFs to stay within your assigned asset allocation (Asset allocation is the single most important aspect of any portfolio... anyone that does not rebalance or diversify by asset class is bound to fail).

Now, all Mutual Funds are not created equal, 98% of mutual funds are simply duplicate or replicates of other funds and are JUNK. Like mentionned earlier, look for MANAGER track records and risk adjusted returns from solid companies. Solid MF companies, in my opinion : Fidelity Investments, CI Investments (and the companies under their umbrella, most notably Signature Global Advisors), Mackenzie Financial, Dynamic Funds (owned by DundeeWealth, but still good stuff), etc. I try to avoid bank mutual funds.

The recent bear market shows that the proof is in the pudding. Look to see which mutual fund managers outperformed the markets by a fair bit in the last 6-8 months.

My 0.02 cents... actually more like a dollar on that one.
[OP]
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Jul 30, 2003
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cleanlude wrote:
Jul 10th, 2009 8:26 am
As an industry professional, I'm a firm believer that there is NO better way to invest than mutual funds.

The whole Mutual Fund vs ETF battle is one that I will fight any day. That being said, a LOT of mutual funds hold Alpha (even after fees). For those not in the know, Alpha is a statistical coefficient used to measure an investment managers risk-adjusted-return over the benchmark he's trying to beat. If an investment has positive Alpha after fees, that means the fund manager attained a higher return than the benchmark without taking more risk.

This virtually means that EVEN after paying the managers fees AND trailing commissions to the advisor for his service, you are still getting value out of investing through active management over a "passive" investment like an ETF. So in the end, you are getting higher risk-adjusted returns and you are getting professional advice and service from an advisor AND a mutual fund management team. With an ETF you get nothing but trade confirmations and a 20$ trading fee. Plus, if you do the ETF gimmick, you have to continously rebalance by buying and selling different classes of ETFs to stay within your assigned asset allocation (Asset allocation is the single most important aspect of any portfolio... anyone that does not rebalance or diversify by asset class is bound to fail).

Now, all Mutual Funds are not created equal, 98% of mutual funds are simply duplicate or replicates of other funds and are JUNK. Like mentionned earlier, look for MANAGER track records and risk adjusted returns from solid companies. Solid MF companies, in my opinion : Fidelity Investments, CI Investments (and the companies under their umbrella, most notably Signature Global Advisors), Mackenzie Financial, Dynamic Funds (owned by DundeeWealth, but still good stuff), etc. I try to avoid bank mutual funds.

The recent bear market shows that the proof is in the pudding. Look to see which mutual fund managers outperformed the markets by a fair bit in the last 6-8 months.

My 0.02 cents... actually more like a dollar on that one.

Ya I am getting similar advice from books I am reading. MF is the way to go.
Can someone give me step by step instructions where / how to look for these best performers (or possibly a list of best performers list) of MF that I should look into. I am looking into high risk-high return types.
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PrinceMS wrote:
Jul 14th, 2009 10:50 pm
Ya I am getting similar advice from books I am reading. MF is the way to go.
Can someone give me step by step instructions where / how to look for these best performers (or possibly a list of best performers list) of MF that I should look into. I am looking into high risk-high return types.
ETFs or index funds are the way to go. Academic research shows over and over again that buying index funds is the better way to invest as compared to buying mutual funds. The ridiculous high fees mutual funds are charging will reduce your bottom line significantly easily up to hundred thousands of dollars for long term investors. It is mathematically impossible that active management can outperform the broader market.
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Apr 1, 2004
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Germack wrote:
Jul 14th, 2009 11:16 pm
ETFs or index funds are the way to go. Academic research shows over and over again that buying index funds is the better way to invest as compared to buying mutual funds. The ridiculous high fees mutual funds are charging will reduce your bottom line significantly easily up to hundred thousands of dollars for long term investors. It is mathematically impossible that active management can outperform the broader market.
I take this as a truism too... but I actually don't know how to find academic papers where a clear unambiguous statement to this effect is made.

Any chance you have any cites or papers available? I've made this argument to multiple people and I always get stumped when they ask for some evidence...
Jr. Member
Jan 27, 2009
177 posts
2 upvotes
Read this article on Mutual Fund vs ETF.

ETFs cost more than you think, especially if you want the equivalent service as your getting in a mutual fund (like asset allocation between classes).

ETFs do not do automatic rebalancing, you have to do that manually and you will incur trading fees as you sell one asset class ETF and buy another (2 transactions right there)... In a volatile market, rebalancing should be happening as often as once a month.

If you fail to rebalance, you fail at investing, PERIOD. Most people "think" they know how to invest, but in reality they neglect the very fundementals of proper investment and risk management. It's all about RISK, not returns. A fool goes after a returns, a sound manager manages risk.

The article (the comparison is on page 2).

http://www.fidelity.ca/fidelity/media/d ... t_0609.pdf


Another major point is tax efficiency if your investing outside of an RRSP. Mutual funds can provide preferred tax treatment using corporate class structures and other tools not available in ETFs.
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Jul 28, 2005
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cleanlude wrote:
Jul 16th, 2009 2:07 pm
you will incur trading fees as you sell one asset class ETF and buy another (2 transactions right there)
So will a mutual fund.
In a volatile market, rebalancing should be happening as often as once a month.
Do you know of any study indicating a need for such frequent rebalancing? The studies I'm aware of show very little long term difference between quarterly, semi-annual and annual rebalancing.
It's all about RISK, not returns.
That's just silly. If it was all about risk there would be no reason for me to invest in things other than real return bonds. Risk is certainly important, but it is not the only factor.

Another major point is tax efficiency if your investing outside of an RRSP. Mutual funds can provide preferred tax treatment using corporate class structures and other tools not available in ETFs.
Most ETFs people use for long term investing are highly tax effective. (I'm not concerned about speculative ETFs.)

Most corporate class mutual funds, while being slightly more tax effective, also have extremely high fees. The extremely high fees ensures that nearly all corporate class mutual funds will over the long term underperform the index by considerable amounts. An expected dramatically lowered return does not make up for a slight increase in tax efficiency.
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Jan 27, 2009
177 posts
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asdfvcx wrote:
Jul 16th, 2009 2:33 pm
So will a mutual fund.
If you trade out of a discount brokerage, yes, but if you trade through a mutual fund dealer, no. You pay a management fee, regardless of switches, transfers and redemptions. BUT, even if you trade with a discount brokerage, a lot of funds have built-in asset allocation mandates, so there is no need to trade, it's all done within the same fund.
Do you know of any study indicating a need for such frequent rebalancing? The studies I'm aware of show very little long term difference between quarterly, semi-annual and annual rebalancing.
Key word was volatile markets, rebalancing should be done based on an asset class in your portfolio surpassing a set overweight or underweight threshold. If your target asset allocation is lets say 25% bonds, then once it hits 20% (a 5% threshold is common), equity should be sold and bonds bought to get things back to 25%. In a volatile market, we can have 5% swings in a few days, meaning that in theory one could ultimately rebalance more often than each month. Realistically though, quarterly is more than fine, but automatic is best :) .

That's just silly. If it was all about risk there would be no reason for me to invest in things other than real return bonds. Risk is certainly important, but it is not the only factor.
Risk-adjusted-returns mean everything whereas standalone returns mean nothing. That's all this meant. Some DIY investors think they are doing great because they are getting good returns, but if they actually crunched some numbers, they would find out that they are taking uncalled-for risk to achieve them. Rebalancing and proper asset allocation tends to ensure that you are on the Efficient Frontier of the risk adjusted return curve.

You can't compare returns unless they are risk-adjusted-returns (i.e. Sharpe ratio is a measure of risk-adjusted returns).

Most ETFs people use for long term investing are highly tax effective. (I'm not concerned about speculative ETFs.)

Most corporate class mutual funds, while being slightly more tax effective, also have extremely high fees. The extremely high fees ensures that nearly all corporate class mutual funds will over the long term underperform the index by considerable amounts. An expected dramatically lowered return does not make up for a slight increase in tax efficiency.

I don't know where you got that from, but corporate class funds aren't any more expensive than regular T3 "mutual trust" funds. MER's on both are usually identical or the difference is so minimal it's not worth mentionning. "Extremely high fees" is a bit much, no?

Corporate class structures offer more than "slight tax effectiveness", we are talking the ability of converting most of the interest and dividend income into return of contributions. These return of contributions reduce your adjusted-cost-basis (ACB) on the MF units, meaning that when you sell them (could be in 100 years) you will incur a capital gain. Capital gains tax is only 50% inclusion rate, whereas interest is fully taxed as income and dividends are taxed in between. In an ETF, your interest will be taxed as interest, if your in the top marginal tax rate, that's 47% of your interest going back to the government. Not only will the Corporate structure DEFER paying tax on most of the interest and dividends, but you will also pay tax at a lower rate WHEN you do pay tax on them.
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cleanlude wrote:
Jul 16th, 2009 3:17 pm
If you trade out of a discount brokerage, yes, but if you trade through a mutual fund dealer, no. You pay a management fee, regardless of switches, transfers and redemptions. BUT, even if you trade with a discount brokerage, a lot of funds have built-in asset allocation mandates, so there is no need to trade, it's all done within the same fund.
You misunderstand. I mean if the fund makes some trades, the costs of those trades are passed onto the fund owners.
Risk-adjusted-returns mean everything whereas standalone returns mean nothing. That's all this meant. Some DIY investors think they are doing great because they are getting good returns, but if they actually crunched some numbers, they would find out that they are taking uncalled-for risk to achieve them. Rebalancing and proper asset allocation tends to ensure that you are on the Efficient Frontier of the risk adjusted return curve.
But that doesn't mean you need to buy managed mutual funds. One can quite easily manage manage risk through their asset allocation of ETFs or index funds.

I don't know where you got that from, but corporate class funds aren't any more expensive than regular T3 "mutual trust" funds. MER's on both are usually identical or the difference is so minimal it's not worth mentionning. "Extremely high fees" is a bit much, no?
To pick an example, CI has a total of 114 corporate class funds. A total of 101 have MERs greater than 2%. I think extremely high is a quite accurate description.

http://fund.ci.com/gishome/plsql/cif.ge ... r_company=


Corporate class structures offer more than "slight tax effectiveness"... [snip] ... Not only will the Corporate structure DEFER paying tax on most of the interest and dividends, but you will also pay tax at a lower rate WHEN you do pay tax on them.
This is all correct. It however makes no difference in tax deferred accounts. And in a taxable account, the expected considerably lowered return will still cause more damages to your savings.

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