In-Depth -Reverse Chronological Order

In "The quest for ALPHA" Larry Swedroe systematically dismantles the theory that active money management can lead to sustained alpha (excess returns above risk-adjusted benchmark)after fees. (Looked pretty convincing to me.)

Ed Easterling's book "Probable Outcomes" contains some interesting historical market data and analysis. His messages: lower than historical returns (might come true) and superior outcomes with active management (unlikely).

A Fiduciary duty requires the fiduciary to place the interests of the client ahead his own.

Structured Products: BMO Life Stage retirement Income Portfolios Complex, opaque and high-fee structured products are usually not good for your wealth. Better get independent professional advice if you are considering them.

13 Bankers- Johnson and Kwak write about how the powerful financial industry/oligarchy has burrowed itself deeply into government policymaking circles, and under the banners of “free-markets and capitalism” they have succeeded in creating an almost regulation-free system where they get most of the upside while the taxpayer pays the bills on the downside.

Pension Reform: It's not rocket science- Based on key parameters for credible pension reform the PRPP comes up wanting against other tabled options. A combined expanded-CPP with the best of Ambachtsheer and Liberal White Paper proposals is worth consideration.

The PRPP (Pooled Retirement Pension Plan): An agreement to do no pension reform but deliver more fees to Canada's financial industry.

New Flexibility in Ontario Pension Windup is great only if it includes self-administered options like those already available for RRSPs/TSFAs.

Fee-only Advisors (Canada/U.S.)- If you are thinking of using an advisor, aim to get one working on a fee-only basis, prepared to offer a fiduciary relationship and who includes an Investment Policy Statement as part of the deliverable.

Rosens' book "$windler$" unmasks Canada's lack of investor protection. All scams are “dependent on conflicted auditors, inadequate or non-existent regulations, ill informed directors, crooked managers and gullible investors.” (Sounds like some private sector pensions.) With the adoption of IFRS, they say, it will get worse! Must read!

Ontario solicits pension report feedback before November 29, 2010. You can read my response at Ontario Pension Feedback: protect earned pensions in bankruptcy, expanded CPP (participation, replacement rate, income ceiling), innovation (fiduciary, mutual ownership, low cost, longevity insurance, auto-enrolment, feedback on expected retirement income). (CPP expansion alone as currently proposed will do nothing for those in or near retirement.)

Markopolos's book  “No one would listen:  A true financial thriller” is entertaining and insightful on the workings of the financial industry and its regulators, as well as the toll on the whistleblower.

In CARP ActionOnline's “Ideas for an investor friendly financial industry in Canada” I suggest three changes which would go a long way to a achieve this are: fiduciary responsibility, low-cost asset management with decoupled fee-only advice, and mutual rather than public financial corporate organizations driven by customers’ best interests.

In Marier's "Improving Canada's retirement saving- Lessons from abroad, ideas from home" he lauds Canada's retirement income system for reducing seniors' poverty, but it has failed at maintaining workers' standard of living in retirement.

In "Animal Spirits" the authors Akerlof and Shiller argue that traditional macroeconomic theory has lost its way by making it more scientific; the result is that it only addresses a small part of the observed macroeconomic behavior by focusing only on rational and economic drivers.

Deflation: Impact on retirees? Is it necessarily bad? For seniors, living on pensions and income from savings, the corrosive effect of taxes decreases as inflation decreases or mild deflation sets in, and their living standard might even improve.

Ontario pension reform: What really needs to be done! There is nothing here for Nortel's or other pensioners of bankrupt companies, and there is little more to address Ontarians' future retirement incomes in general.

Reinhart and Rogoff's book  "This Time is Different" explains why it is not. Excessive debt causes systemic risk leading to predictable "sequencing of crises"; watch for them! The Second Great Contraction is still unfolding (but not inevitably so)

Nortel pensioners’ CCAA claim: How will the final windup ratio be determined? Final windup ratio exclusively on the basis of an insurance company annuity quote rather than some  actuarial estimate with no skin in the estimate.

Time Diversification: Stocks less risky over the long term? (Not!) Though end-of-horizon loss probability decreases with increasing horizon, within-horizon risk increases. This is even more so for a retiree decumulating assets. Asset allocation must be determined based on risk tolerance not investment horizon.  

ETF Concerns: There are risks, but thanks I'll stay with ETFs for my money - Used as originally intended: broad/diversified asset classes, low-cost, high liquidity, and limited trading with appropriate order types, ETFs are still my preferred portfolio implementation.

Insurance: To insure or self-insure? Public or mutual insurance company? Getting value for your insurance dollar? High load factors, premiums always higher than expected benefits, drawback of public vs mutual insurance companies, all makes us consider to insure or self-insure.

2010 CFA Conference Highlights- financial industry lost its way, "behavioral finance" is important, regulation is needed, developed country sovereign debt crisis in democracies may inevitably result in low growth and high inflation, multi-regime market models.

Input to Department of Finance spring 2010 reform Consultations on Retirement Income System: Enable adequate savings, acces to low-cost large-scale professionally-managed investment vehicle and longevity insurance, and increased tax-deferred savings.

Individual health insurance in Canada Options include: Basic plan (only hospital and extended health), comprehensive (also including drugs and dental), or self-insurance. Given low coverage caps, high load factors and Canada's universal health care, the self-insurance option may work for many. If leaving a group, individuals may be able to buy policies without medical questionnaire within 30-60 days.

If you are interested in the history of finance, its visionaries and innovators, the financial products whether toxic and otherwise, explanation of financial terms, and how the financial industry through its greed and stupidity almost (at least for now) plunged us into the next Great Depression, you must read Niall Ferguson's "The ascent of Money"  .

"Nortel Settlement Agreement: What's in it for pensioners? It offers about a $2,000 value now, while it forces pensioners to forgo a potential of up 5-50 times as much upside later, if a successful fight can mounted to receive claims priority and/or action against Nortel, its Board, Officers and their advisors arguing that they did not meet their fiduciary and professional responsibilities toward pensioners.

Bernstein's “The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between” is a must read book. He states that only a very small minority of investors will succeed at managing their own investments and then proceeds to fill his short (<200 page) book with valuable advice. It’s an easy read, which could pay you a lifetime of dividends; it might even help save you from eating cat food in retirement.

Andrew Smithers's "Wall Street -Revalued" principles are that assets can be objectively valued and central bankers should prevent bubbles. Not easy, but interesting read; still difficult to benefit from 'objective asset values'.

Impressions of the Whitehorse Pension Conference: Actions-none; recommendations-none; "all is well" if you you earn an average or less than average wage (or if you are a public servant); otherwise, get prepared for a significant cut in your standard of living; DB pension plans, which triggerd all this hectic government pension activity were hardly mentioned in the report.

I can't recommend Critical Illness (CI) Insurance - It's expensive (high load factors), payout is not related to financial loss, policies are complex and not standardized; better spend your insurance premium dollars on health/disability/life insurance or set up your own CI savings account.

A couple of interesting research papers from Pension Research Council on "Decumulation Strategies and Robust DC Pension Plans"- The first paper compares nine decumulation strategies in terms of income streams and residual assets, while the second uses a feedback mechanism to improve robustness of DC plan outcomes.

Asset Allocation II- Expert perspectives, risk considerations and building your custom asset allocation, "the only free lunch in investing".

Benoit Mandelbrot's "The (Mis)behavior of Markets" is a is both interesting and disturbing. He discusses the basic ideas on which today's finance theory is built as well as the stories of the people who were the originators of the ideas; but disturbing, because he (re-)asserts that everything in modern finance is built on a foundation of sand.

Long-Term Care Insurance (LTCI-II)- Musings on the Affordability, Need and Value: A (More) Quantitative View After a more quantitative look at LTCI, I still don't feel moved to buy it or recommend it as a must have item for most. Read overview blog in LTCI-I as well and make your own call to secure your "peace of mind". 

      .....More In-Depth blogs

Personal Finance/Planning           

Control What You Can -Save (aggressively), spend (using 'endowment' model), (minimize) cost!

TFSA or RRSP? 401(k) or Roth 401 (k)? Tax-free or tax-deferred account?- Tax Free Savings Accounts (TFSAs) are coming to Canada in 2009. Which one is better for you- TSFA or RRSP? It depends on many factor, known and unknown. Ideally you'll want to take advantage of both and save the maximum allowable in each. Even if you can't max out both, you may gain some flexibility in retirement by investing in both vehicles.

Estate Planning - What is it and why do you need it?

flexibleRetirementPlanner is a real gem...try it!

How Much Will You Need in Retirement?  Disaggreement about the level and shape of spending during retirement years. Higher/lower than pre-retirement? Constant in nominal terms? Constant in inflation adjusted terms? Continuously deacreasing? Bathtub shaped?

Retired/Decumulation                   

A couple of interesting research papers from Pension Research Council on "Decumulation Strategies and Robust DC Pension Plans"- The first paper compares nine decumulation strategies in terms of income streams and residual assets, while the second uses a feedback mechanism to improve robustness of DC plan outcomes.

Pang and Warshawsky's Comparing strategies for retirement wealth management: Mutual funds and annuities is a must read. It compares six strategies; systematic withdrawal alone or combined with partial annuitization are the best. (Longevity insurance is not considered). GMWBs don't cut it even against 1.2% MER funds; imagine the outcome against 0.1-0.2% index funds!

What Now? (Oct. 13, 2008)- Review spending, identify expense "musts" and "wants", identify pension income, calculate required investments for remaining "musts" and "wants", stress test and take corrective action.

Senior Inflation looks at the potential damage that inflation can inflict on the retirees' real incomes. The damage may be a result of a rapidly escalating CPI as one approaches an otherwise well planned retirement or may be a result of the different basket of goods and services that seniors buy or it may be one's own personal CPI being significantly higher than that of the average population.

Withdrawal strategies in retirement(expanded) 30 year horizon strategies suggesting total withdrawal rates ranging between 4%-5.5%

Withdrawal Strategies in Retirement Approaches used to reduce chance of of running out of money during retirement

Asset Allocation & Portfolio Impl.

Asset Allocation II- Expert perspectives, risk considerations and building your custom asset allocation, "the only free lunch in investing".

Simple and Cheap ETF Implementation of a Balanced Portfolio Why should you care? Because lower costs can increase your accumulated assets and/or retirement income by over 50%!

"Are 'target-date' funds or is an 'age-independent' fixed asset allocation right for you? While 'target-date" funds may be raking in the assets, a risk-tolerance driven (age-independent) asset allocation may be better for your wealth.

Concentration may make sense; if you can live with the increased volatility and can find managers who will consistently outperform (not a cakewalk). Then, you may want to include some concentrated funds in the satellite portion of your ‘core-satellite’ portfolio.

Core-Satellite Investing Can't decide if passive or active investing is right for you? You're convinced that passive is the way to go, but you think that you can "add value" with a sprinkling of active investing!?! Either way, core-satellite may offer you a way to proceed.

"Protecting the Downside, while Participating in the Upside"

Benchmarks You can't judge performance of your fund, advisor or portfolio without a benchmark. 

Life-Cycle Investing: evolution or evolution, but are we ready for its implications?

Target-Date Funds II Build your own ETF based custom designed lifecycle fund

Target-Date Funds Good for some if used with care.

ETFs: Past, Present and Future(?) ETF advantages, new flavors and problems to watch out for. Are advantages being eroded?

Good(?) news, mutual funds perform better in recessions than expansions The question then remains why would you buy or hold actively managed mutual funds.

Advisors/Advice                            

Want the greatest bang for the buck from your advisor? If you will spend your hard earned dollars on an advisor, a good place to start is working on a retirement roadmap with your financial planner.

 Miscellaneous                               

P/E Ratio - it can be confusing and misleading

Behavioral Finance Overconfidence, pride and regret, considering the past, mental accounting, emotions...and other biases. How to beat them and how to use them for the good.

Hedging of Foreign Currency Exposure: What is it? How to do it? To hedge or not to hedge?

What’s in the Budget for Retirees? Not a great deal more than the reaffirmed pension splitting announced before.

Cross-Border Living A Canadian owning U.S. property or is a snowbird or working in the U.S. or thinking of moving to the U.S., better understand the complexities and opportunities to do it the right or wrong way. 

Mostly) Great News for Retirees/Pensioners  Mr. Flaherty, Canada's Minister of Finance showed up on Halloween with a trick and a treat.

Further Reading                                                      

   Books    

    Newspapers, Magazines, Columnists   

Blogs

J. Chevreau's Wealthy Boomer

R. Carrick's Personal Finance columns

Tools 

Pensions: Pension Crisis/Reform 

Nortel pensioners’ CCAA claim: How will the final windup ratio be determined? Final windup ratio exclusively on the basis of an insurance company annuity quote rather than some  actuarial estimate with no skin in the estimate.

Input to Department of Finance spring 2010 reform Consultations on Retirement Income System: Enable adequate savings, acces to low-cost large-scale professionally-managed investment vehicle and longevity insurance, and increased tax-deferred savings.

"Nortel Settlement Agreement: What's in it for pensioners? It offers about a $2,000 value now, while it forces pensioners to forgo a potential of up 5-50 times as much upside later, if a successful fight can mounted to receive claims priority and/or action against Nortel, its Board, Officers and their advisors arguing that they did not meet their fiduciary and professional responsibilities toward pensioners.

Impressions of the Whitehorse Pension Conference: Actions-none; recommendations-none; "all is well" if you you earn an average or less than average wage (or if you are a public servant); otherwise, get prepared for a significant cut in your standard of living; DB pension plans, which triggerd all this hectic government pension activity were hardly mentioned in the report.

Pension Crisis- Financial Post's William Hanley interviews Peter Benedek

Q&A: Take Commuted Value (CV) or "pension"? Just laid-off from Nortel (summer 2009 It depends on the level of your pension and your assessment of the probabilities/sizes of various upside outcomes versus the possibility of being forced into an annuity with no additional funds flowing into the Canadian pension plan.

Emergency Policy Changes Required to Ease Impact of Pension Crisis and Enable Pension Reform BIA priority, tax-credit, protect Canadian estate, $55K pension guaranty, CV option and 100% transferability to RRSP, new pension system model.

Outside-the-box pension options and path to pension reform Legislated annuity only wind-up offers 25-50% lower expected NPV than alternatives based on Commuted Value, Longevity Insurance and pensioners insurance and investment management company. Proposal also offers framework for pension reform.

Too little, too late!- 50% interim CV payments would be more appropriate than the Nortel proposed 69% motion to the Court.

 “Jack Mintz: Beware of the super pension fund"-NOT

Systemic Failure in Canada’s Private Pensions: Who could have prevented it? What could be done now?

Pensions: Relief for companies, but not pensioners Learning from the U.S., Ontario Budget on pensions, opposing views. 

Pensions: General and Nortel Specific Topics Marconi look alike? Nortel life insurance, other pension stories

The Nortel Retirees' Protection Committee  (NRPC)website is now live for those interested in participating or in just monitoring the actions to protect Nortel pensioners.

"Pension Reform Feedback to Ottawa and Toronto" Be heard on pension reform! Deadline to submit your views to Ottawa is March 16 and to Toronto is February 27, 2009. Read my comments/perspectives at this link, and please take the time to submit yours if you want change.

Nortel Pensioners' Crisis- Read some of last week's press coverage of the crisis in the January 25, 2009 Hot Off the Web blog: overflowing pensioners' meetings in Ottawa, sign-up with Koskie Minsky, Quebec pension protection (not quite), vaporized severences/transitional-allowances/excess-payments/et al, UK pensioners appear better protected than Canadians and Americans.

Nortel Pensions How we got here (though we are not quite sure where we are) and what to watch out for in the coming weeks and months.

Ontario Expert Commission on Pensions  Commissioner Arthurs' report is "an iron fist in a velvet glove". Of his 142 recommendations, I take exception to really only the one where he recommends retention of the 3 year valuation cycle for SEPPs instead of demanding annual valuations. The ball is now in the court of the Ontario and federal governments for quick legislative action.

Nortel seeks legal advice on exploring bankruptcy This is a sad day for current and ex-Nortel employees. The implication on pension plan members is difficult to determine as yet, but those who have read my earlier blogs on pensions may have a sense on the possible outcomes. A CAW note on potential pension outcomes in bankruptcy may also be of interest.

Pension relief for corporations? Yes, but not without protecting the pensioners

What's wrong with private-sector DB pension plans? Problems and solutions -Contribution holidays, underfunded plans, inappropriate portfolios, aggressive actuarial/investment management practices, conflict of interest challenges, and ineffective regulations/regulators.

Under-Funded Pension Plans - New Canadian legislation to raise priority of unremitted pension contribution in a bankruptcy or receivership.

Canada Supplementary Pension Plan (CSPP) -Keith Ambachtsheer's, C.D. Howe Institute sponsored, blueprint for Canada's future pension system- and a call to action

Is your (defined benefit) company pension safe? Is it adequately funded? Is pension plan valuation: Art, science or magic? ...and the answers are: No, Maybe, Not science....

Pension Reform Problems and solutions for DB pension plans and a proposal for pension system revolution (presented to Ontario Expert Commission on Pensions)

Pension or Lump Sum? There is more to it than the health of  your employer

Is Retirement Past Its Prime

Pension/Retirement Plan Reforms

Changes Needed for Pensions-Make Your Voices Heard  Ontario has just established an Expert  Commission on Pensions

Books

Reinhart and Rogoff's book  "This Time is Different" explains why it is not. Excessive debt causes systemic risk leading to predictable "sequencing of crises"; watch for them! The Second Great Contraction is still unfolding (but not inevitably so)

If you are interested in the history of finance, its visionaries and innovators, the financial products whether toxic and otherwise, explanation of financial terms, and how the financial industry through its greed and stupidity almost (at least for now) plunged us into the next Great Depression, you must read Niall Ferguson's "The ascent of Money"  .

Andrew Smithers's "Wall Street -Revalued" principles are that assets can be objectively valued and central bankers should prevent bubbles. Not easy, but interesting read; still difficult to benefit from 'objective asset values'.

Benoit Mandelbrot's "The (Mis)behavior of Markets" is a is both interesting and disturbing. He discusses the basic ideas on which today's finance theory is built as well as the stories of the people who were the originators of the ideas; but disturbing, because he (re-)asserts that everything in modern finance is built on a foundation of sand.