Outstanding Financial Pornography

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
User avatar
scomac
Veteran Contributor
Veteran Contributor
Posts: 7788
Joined: 19 Feb 2005 09:47
Location: The Gateway to Wine Country

Re: Outstanding Financial Pornography

Post by scomac »

hboy43 wrote:
scomac wrote: This may help. The article suggests using the Sharpe ratio as a means of determining risk adjusted return for a single security. From there you could derive a portfolios risk-adjusted return.
Thank you Scott for the links. I read a bit and don't see the whole idea as useful in the long run in terms of having the biggest pile of money after a lifetime of saving and investing, if one can be rational. Surely actual average returns of say 10% PA that are highly volatile and lead to a risk adjusted number of say 8, is a bigger pile in 20 or 30 years than an actual average return of 9 that risk adjusts to 8.

I guess it all comes down to "rational". Most are not, so it seems to me this is a tool to keep folks in the game in the short term at the cost of the long term to a avoid a situation like 2008 where an individual quits the market and hides in GICs for the rest of their lives.

Is my assessment fair here or have I completely missed the point?

Hboy43
The utility in calculating such things are for comparative purposes. It may not be all that relevant to someone in your own personal situation, but it is a means of looking at two or more different investments to see which one is taking on more risk per unit of return than the other. This could be an important consideration for an investor because the potential is greater for the riskier investment to suffer a big drawdown going forward. Just because assuming additional risk may have worked in the past there are no guarantees that it will continue to do so in the future.

In my own situation I have fifteen years or so now of tracking information and I've been looking at segmented returns to try and see where I'm adding value and perhaps where I'm not. Essentially I'm trying to determine where assuming risk has been beneficial and where it hasn't. This has led me to rethink what I've been doing. That was behind me recently selling most of my preferred share exposure as well as dialing back on small cap exposure. I've done well with those investments over the years, but not without assuming considerably more risk that with comparable investments in bonds and large cap stocks. The ratios of winners to losers spelled that out pretty clearly without having to get into esoteric calculations.

It doesn't make for exciting cocktail party conversation, but it was enlightening to learn that I don't need to do some of the things I had been doing to achieve the required rate of return. It isn't quite as simple as a highly volatile 10% netting you 8% risk adjusted versus a less volatile 9% netting a similar number. The differences tend to be quite a bit starker than that when taking on materially different levels of risk. With my own analysis that was working out to about a 1.7% difference per annum less return from small stocks versus large. My conclusion is why bother.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: Outstanding Financial Pornography

Post by newguy »

hboy43 wrote: I guess it all comes down to "rational". Most are not, so it seems to me this is a tool to keep folks in the game in the short term at the cost of the long term to a avoid a situation like 2008 where an individual quits the market and hides in GICs for the rest of their lives.

Is my assessment fair here or have I completely missed the point?
I think that's a good point for normal portfolios. You've missed the use of leverage. The higher risk adjusted returns can turn into higher absolute returns with leverage.

newguy
hboy43
Contributor
Contributor
Posts: 246
Joined: 28 Nov 2007 17:20

Re: Outstanding Financial Pornography

Post by hboy43 »

Thank you Scott and Newguy for the additional points.

The idea of "return per unit of risk" makes more sense to me than calling the idea "risk adjusted return". It seems to me it is more a figure of merit than a return number, so trying to map a 10% long term actual return onto 8% risk adjusted return as I did above really isn't the right way of thinking about it.

Also, the leverage bit makes complete sense to me. An experted 8% return in low risk stuff, leveraged up to 10% is likely a better idea than risky stuff with a direct 10% expected return.

Hboy43
User avatar
Peculiar_Investor
Administrator
Administrator
Posts: 13271
Joined: 01 Mar 2005 14:52
Location: Calgary
Contact:

Re: Outstanding Financial Pornography

Post by Peculiar_Investor »

From today's G&M comes Passive investing is on trend, but it's not for everyone - The Globe and Mail
Kira Vermond wrote:Only hours after Donald Trump’s unexpected election win in November, Judith Cane, a money coach in Ottawa, heard from her investment adviser, who was ready with prudent advice: Don’t. Freak. Out.

Ms. Cane was thankful for that guidance, as markets went into a tailspin that night, but even more so when they rebounded the next afternoon.

Yet she wonders how many do-it-yourselfers, who often rely on passive investments, fared. She was, after all, able to sit tight on her investments partly because she had someone to hold her hand.

“I don’t mind paying the fees because I think it’s worth it,” she says now. “I’m paying for this person to manage the downside, not the upside.”
Are you freaking kidding me. She's just paying for her advisor's yacht or sports car, so something. I've bolded a particular sentence and am left to wonder how she (or the article's author) equate passive investing with anything but a) low costs and b) STAY THE COURSE
Kira Vermond wrote:Part of the reason for sticking with actively managed funds can be chalked up to apathy or even fear of change, but that’s not the whole story. Many investors simply want to know there’s someone out there wading through data for them and trying to find the best way forward. That’s particularly true in down or volatile markets.
I'm guessing her advisor hasn't shared the following prudent advice from the SPIVA® Canada Scorecard - mid-year 2016
SPIVA scorecard wrote:The see-sawing market resulted in the majority of active equity managers investing in domestic equity faring worse than their respective benchmarks, with just over one-quarter of Canadian equity funds (26.42%) outperforming the S&P/TSX Composite over the one year period.
BTW, who is Judith Cane and what's a "money coach". According to her website Judith Cane is "Canada's Money Coach", apparently self-elected AFAIK. (I won't dignify her with a link). Kira Vermond's resume does inspire much confidence either, "I’ve been a professional, full-time freelance writer for more than 15 years."

Financial pornography like this is absolute the raison d'être for the existence of FWF. It's just a shame that articles like this reach the general public on a regular basis and FWF struggles to reach the masses and educate them on the fallacy of articles such as this.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
User avatar
GreatLaker
Contributor
Contributor
Posts: 662
Joined: 16 Dec 2014 13:02
Location: Toronto

Re: Outstanding Financial Pornography

Post by GreatLaker »

Yeah, I thought that was a particularly bad article.
Kira Vermond wrote:Judith Cane, a money coach in Ottawa, heard from her investment adviser, who was ready with prudent advice
A money coach needs a financial adviser? Colour me surprised!
Kira Vermond wrote:She was, after all, able to sit tight on her investments partly because she had someone to hold her hand.
I have 2 hands so when it comes to investing I hold my own (pun intended). Good investors learn to control their emotions and not react to market volatility.
Kira Vermond wrote:I don’t mind paying the fees because I think it’s worth it,” she says now. “I’m paying for this person to manage the downside, not the upside.
Studies have shown that active management is no better at avoiding bear markets than it is at capturing the upside. Investment managers often have conflicts of interest and short term goals that override what is best for their clients.
Kira Vermond wrote:The spectre of market volatility underlines a major downside of passive investing: What happens if your passive portfolio tanks right when you need the money for retirement?
The same thing that happens if the investor holds an actively managed portfolio and it tanks. Proper portfolio design and asset allocation are needed for a retirement portfolio, not some magic added by an active manager.
Kira Vermond wrote:Good managers might not have a crystal ball to help them time the market, but they can read the fine print in a company’s annual report or pick up the phone and talk to its chief financial officer.
Perhaps, but companies are not allowed to share company information that has not already been disseminated publicly.
Kira Vermond wrote:Ms. Cane also likes actively managed funds that are rebalanced for her age and lifestyle. As she approaches retirement, more of her investments convert to fixed-income-style vehicles to keep things less risky. 'Rebalancing is the key to having a great portfolio that achieves your plan,' she says.
Rebalancing is one parameter of successful investing, but I'd say it is less important than a good IPS, appropriate asset allocation, saving consistently and sticking to the plan. Rebalancing is easy and does not need to be done frequently.


This one's really good:
Kira Vermond wrote:Warren Buffet, he’s a firm believer in managing your own, or active management. And I’ve got to say, I trust him.
Mr. Buffett is a great investor with an amazing record. But for others he advocates indexing. Here is what he said about his will in his 2012 letter to shareholders: "My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."
When I was young, I was poor. Now, after years of hard work, I am no longer young.
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Outstanding Financial Pornography

Post by kcowan »

Peculiar_Investor wrote:Financial pornography like this is absolute the raison d'être for the existence of FWF. It's just a shame that articles like this reach the general public on a regular basis and FWF struggles to reach the masses and educate them on the fallacy of articles such as this.
That was a decision by FWF to select "do nothing" Norbert as a Director. I was running on the notion that we must become popular or we will continue to be an irrelevant backwater. And sadly I appear to have been right.

OTOH that was then and now I am too retired to offer to do that again. I have developed other interests making no time available.
For the fun of it...Keith
User avatar
scomac
Veteran Contributor
Veteran Contributor
Posts: 7788
Joined: 19 Feb 2005 09:47
Location: The Gateway to Wine Country

Re: Outstanding Financial Pornography

Post by scomac »

[Off Topic]
kcowan wrote:
Peculiar_Investor wrote:Financial pornography like this is absolute the raison d'être for the existence of FWF. It's just a shame that articles like this reach the general public on a regular basis and FWF struggles to reach the masses and educate them on the fallacy of articles such as this.
That was a decision by FWF to select "do nothing" Norbert as a Director. I was running on the notion that we must become popular or we will continue to be an irrelevant backwater. And sadly I appear to have been right.
Perhaps, but it would seem that the competing forum hasn't really got the ear of the media either despite some rather blatant attempts to monetize that particular asset.

Today, the world operates 140 characters at a time. If you're not on Facebook/Twitter you are irrelevant. Effectively, these discussions would be happening on those platforms and I'm not sure that is in the best interests of providing searchable centralized access to the information contained within these pages. The subject matter doesn't really lend itself to the social media format.

[/Off Topic]
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
User avatar
SkaSka
Contributor
Contributor
Posts: 727
Joined: 29 Nov 2012 01:21
Location: Raincouver

Re: Outstanding Financial Pornography

Post by SkaSka »

Unfortunately, the mainstream media isn't after real knowledge or real education. They are in the business of giving the people what they want, and what people want is literal shit. Please go peruse all facets of mainstream media if unconvinced.

Therefore, if FWF wanted to "get out there" like the absolute crock of shit story above, it would inevitably have to morph into shit.

And you have got to be ******* kidding me: a money coach, errr "Canada's Money Coach™", needing a financial advisor to help her "stay the course"!? I don't know whether to laugh or cry :lol:
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: Outstanding Financial Pornography

Post by Descartes »

A "Money Coach" is apparently someone who focuses on saving/cost reduction a la Gail Vaz-Oxlade not investing.

From the Money Coach's website:
A money management workshop will help you and your group to understand more about money/debt/assets and how to successfully and confidently manage your money. It’s time to talk with me, Canada’s Money Coach.

One of my favourite things about money coaching is workshops. When people are together they feel more relaxed, they see that their struggles with money are often very similar to their friends and neighbours. My money management workshops that are based on the participants needs. I share my personal experience in an open, encouraging, interactive and informed manner. I help people understand their current financial situation and how to plan for the future. If debt is an issue, I can offer personal insight and tips on how to manage debt, and get back on track. If financial planning is an afterthought, I bring it to the forefront.
"A dividend is a dictate of management. A capital gain is a whim of the market."
User avatar
SkaSka
Contributor
Contributor
Posts: 727
Joined: 29 Nov 2012 01:21
Location: Raincouver

Re: Outstanding Financial Pornography

Post by SkaSka »

Upon further reflection, coming from a personal position of knowing a bit more about money/investing, etc, combined with the definition provided by Descartes on what a "Money Coach" is, I definitely was presenting a biased point of view based on a combination of my own money knowledge and ignorance of what a Money Coach is.

I do tend to scoff at people framing themselves as some sort of expert in this or that - be it "money coach", "personal finance expert", etc - especially when it is fairly elementary stuff that said "expertise" is being claimed. However, I suppose everyone starts somewhere and needs guidance. I also understand that one needs to market and sell themselves when they are selling a product or service.

In conclusion, all sorts of personal biases affect both my intake of information and response.

I suppose I'm just a bit more suspicious and critical by nature - a paradoxically good and bad trait to possess.
User avatar
Koogie
Veteran Contributor
Veteran Contributor
Posts: 3972
Joined: 09 Mar 2012 16:44

Re: Outstanding Financial Pornography

Post by Koogie »

SkaSka, FWIW I liked both of your responses... :lol:

I perused her website link as provided by Descartes and her persona and patter were pretty odious but the basic message was okay. Much like G.v.O. and others there is a huge market for that sort of basic budgeting/cost reduction/financial responsibility message. If the 60% of Canadians living paycheque to paycheque were to listen, they'd be better off for it. But, I don't think that basic niche is the raison d'etre of FWF ?

{OFF TOPIC}
Personally, I think it is probably good so many people fail at personal finance. Our economy needs heavy consumers, rent to owners, mortgage slaves and people who buy the extended warranties... :P

That isn't P.C. or a popular view probably but.... meh. There will always be economic "winners" and losers and as much as progressive people wish it were otherwise, I think you probably can't fight human nature. I say just try to learn and put in the effort to be on the correct side of the financial equation and help those you care about to be as well.
{OFF TOPIC}
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Outstanding Financial Pornography

Post by kcowan »

Also CRM2 effective Jan 1 will force disclosure of portfolio management costs. It might not create a sea change but it is a start.
For the fun of it...Keith
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Outstanding Financial Pornography

Post by AltaRed »

kcowan wrote:Also CRM2 effective Jan 1 will force disclosure of portfolio management costs. It might not create a sea change but it is a start.
And there is a thread I've started just for the purpose of FWF members observing/commenting on the data they are (will be) getting this month for 2016.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
cashinstinct
Contributor
Contributor
Posts: 203
Joined: 01 May 2008 00:35

Re: Outstanding Financial Pornography

Post by cashinstinct »

http://business.financialpost.com/perso ... ife-layoff


Can this couple’s standard of living survive a midlife layoff?

"In Ontario, a couple we’ll call Phil, 47, and Maria, 48, have two children ages 10 and 15, a $1.5 million house, $3.3 million in net worth and a big problem. Laid off after 18 years with a major company that paid him a $150,000 annual salary, Phil worries he won’t be able to get another job in financial management. Maria, who earns $132,000 a year in accounting, has become the family’s main breadwinner."


Seriously? 3.3 million net worth, one salary of 132,000... that's a family finance issue ???

Seems like they only pick rich people for these profiles
steves
Veteran Contributor
Veteran Contributor
Posts: 3200
Joined: 01 Mar 2005 15:02
Location: Hornby Island BC
Contact:

Re: Outstanding Financial Pornography

Post by steves »

Not once in these FP money articles do they mention income tax. Have the feds eliminated income tax.... who knew?
Live Rich, Die Broke (but not too soon).
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: Outstanding Financial Pornography

Post by deaddog »

cashinstinct wrote: Seems like they only pick rich people for these profiles
That is their readership. Poor people don't read the Post.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Outstanding Financial Pornography

Post by kcowan »

cashinstinct wrote:Laid off after 18 years with a major company that paid him a $150,000 annual salary, Phil worries he won’t be able to get another job in financial management.
If he is competent, he should land a good job. He needs it!
FP-NetWorth.jpg
This is why net worth is such a bad word. His liquid net worth is 90+74+61-57=$168k!
Yup definitely need an employment consultant.
For the fun of it...Keith
Spudd
Veteran Contributor
Veteran Contributor
Posts: 1518
Joined: 22 Sep 2013 14:52

Re: Outstanding Financial Pornography

Post by Spudd »

Their advice is crazy too. Buddy just got laid off, and they think he should sink most of his available cash into his mortgage? I don't think paying off the mortgage should be his biggest priority right now. Maybe after he finds a new job. They can stop RESP contributions instead and save almost as much ($416/mo vs $500/mo). Since they have 123k in RESP that's plenty.
cashinstinct
Contributor
Contributor
Posts: 203
Joined: 01 May 2008 00:35

Re: Outstanding Financial Pornography

Post by cashinstinct »

deaddog wrote:That is their readership. Poor people don't read the Post.
I understand they don't do profiles of people with minimum wage, but I wonder how many of their readers have $3 million+ net worth, offer parents to rent free a 450k condo and are worried about their finances because they only have 132k income?
steves wrote:Not once in these FP money articles do they mention income tax. Have the feds eliminated income tax.... who knew?
I would assume they compare monthly expenses with after tax income?

What do you want them to say about income tax?
kcowan wrote:This is why net worth is such a bad word. His liquid net worth is 90+74+61-57=$168k!
Yup definitely need an employment consultant.
Well, he could easily sell his 450k condo that he offers rent free to his parents. It would be a change of "standard of lifestyle" I guess? He has options to generate cash.

Also, he does not have to pay his 57k mortgage right away.

I agree he should get another job, but my comment was more about the tone of the article, like they were in a awful financial state and absolutely needed advice.
Spudd wrote:Their advice is crazy too. Buddy just got laid off, and they think he should sink most of his available cash into his mortgage? I don't think paying off the mortgage should be his biggest priority right now. Maybe after he finds a new job. They can stop RESP contributions instead and save almost as much ($416/mo vs $500/mo). Since they have 123k in RESP that's plenty.
I agree the mortgage advice is not good. They can balance budget (without prior savings habits though) for now, even with mortgage. They should keep the 74k cash as a cushion for unplanned expenses.

To be fair though, they say later in the article that the couple could stop RESP contributions.
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: Outstanding Financial Pornography

Post by deaddog »

kcowan wrote:
This is why net worth is such a bad word. His liquid net worth is 90+74+61-57=$168k!
Yup definitely need an employment consultant.
You can also include the RRSP less tax liabilities in Liquid net worth.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Outstanding Financial Pornography

Post by kcowan »

I think the priorities would be
1. Get a job
2. Stop RESP contributions
3. Spend non-reg
4 Spend TFSA
5 Spend RRSP
For the fun of it...Keith
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: Outstanding Financial Pornography

Post by Descartes »

So the monthly expenses are $7500 or 90K a year.
She makes 132K in Ontario and so will roughly pay 39K in income tax without any special deductions which gives them 93K a year.
3K annual surplus.
Why should he get a job? :P

To be fair, this particular couple is rated a "retirement readiness" of 5 out of 5 stars (scroll down to see the ratings).
Other subjects have rated worse.
"A dividend is a dictate of management. A capital gain is a whim of the market."
cashinstinct
Contributor
Contributor
Posts: 203
Joined: 01 May 2008 00:35

Re: Outstanding Financial Pornography

Post by cashinstinct »

Descartes wrote: To be fair, this particular couple is rated a "retirement readiness" of 5 out of 5 stars (scroll down to see the ratings).
Other subjects have rated worse.
Probably not their worst analysis. What a compliment :rofl:
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: Outstanding Financial Pornography

Post by Descartes »

cashinstinct wrote:
Descartes wrote: To be fair, this particular couple is rated a "retirement readiness" of 5 out of 5 stars (scroll down to see the ratings).
Other subjects have rated worse.
Probably not their worst analysis. What a compliment :rofl:
You misunderstand: this particular couple is much better off than most they profile; i.e. others are more needful of assistance.
"A dividend is a dictate of management. A capital gain is a whim of the market."
cashinstinct
Contributor
Contributor
Posts: 203
Joined: 01 May 2008 00:35

Re: Outstanding Financial Pornography

Post by cashinstinct »

Descartes wrote:You misunderstand: this particular couple is much better off than most they profile; i.e. others are more needful of assistance.
I understood. They accurately gave 5 star to the overall situation of the couple. Therefore, it's not their worst analysis they have done, even though the advice given is certainly not perfect.

They often give 2-3 star to people who are not in that bad situation. It's rare that they give 5 stars...
Post Reply