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Interestingly, today’s WSJ in “Spending in Retirement” discusses the same important topic I covered in my last week’s blog on “Withdrawal Strategies in Retirement”. That is, how much can you withdraw from your portfolio without running out of money? The perspectives presented here are very similar. Here reference is made to Jonathan Guyton’s work that the 4% rule of thumb for annual withdrawals can be increased to 5.5% for a 30 year horizon with 65:25:10 stock:bond:cash portfolio if certain guidelines are adhered to, such as: (i) if value of portfolio after you have withdrawn money is lower than at start of year, do not make an inflation adjustment the next year and (ii) when losses/gains are large then “guardrails” are used, i.e. when portfolio withdrawal rate increases/decreases by more than 1% from 5.5% starting value, then add the inflation adjustment but reduce/increase and then decrease/increase withdrawal rate by an additional 10%.

In the Financial Post Chevreau reviews a couple of books that sound interesting (I haven’t read them as yet) in “Here are Two Books Bay Street Will Hate”. In “The Smartest Investment Book You’ll Ever Read” Solin advocates a very simple investment process (what sounds much like I am advocating in the Education section of this website) is to set your asset allocation, use ETFs to implement the portfolio and rebalance periodically. He says that Canadian investors would be better off taking control of their own finances and then dealing through an on-line discount broker. In “The Naked Investor- Why Almost Everybody but You Gets Rich on Your RRSP” Reynolds accuses the financial services industry of being more driven by self interest than in bringing value to the investor. Unlike Solin, Reynolds (like Chevreau) still sees a role for good advisors in “emotional aspects of investing, in long-term financial planning, tax and estate problems.

In “It’s Checkup Time for Your Portfolio- and Adviser”Rob Carrick of the Globe and Mail suggests tests that you may do to check how your portfolio and adviser are doing, and don’t assume that all is well just because you have an adviser and markets had a four year run! Some of the tests include the frequency (haven’t heard from him for more than a year? and type (how are you doing against benchmarks and your financial goals?) of communication that you may have had with your adviser. Other tests relate to your diversification, the type of mutual funds you are holding, the fees you are paying.

The WSJ’s “How to Set Financial priorities” advice is to work your financial issues in the following order: (credit card) debt, cash for 3-6 month’s worth of living expenses, retirement savings (especially those matched by the employer, followed by college savings, mortgage prepayment, insurance and estate planning. I suspect for Canadians the mortgage prepayment may be slightly higher on the list, given that interest is not deductible. Also in the WSJ in “Smart Retirement Shopping” you are warned by Opdyke about high pressure sales people pitching likely unsuitable products like: life settlements, reverse mortgages, variable and indexed annuities, (whole, universal and variable) life insurance and living trusts. Beware!

And finally, Lawrence Strauss in Barron’s “Spotlight’s on Index Funds’ Expenses” reminds us that it’s not enough to use index funds without checking to see their expense ratios. The example given is that S&P500 index funds have expense ratios in the range of 0.07-1.45% (most likely with corresponding performance impacts).


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