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Jonathan Chevreau reports that finally there are additional offerings of Canadian life cycle funds in “BMO takes life cycle for a spin”. Fidelity’s ClearPath is being joined by BMO’s Life Stage Plus family of funds. These are quite different from their brethren in they are quite aggressive initially and become relatively conservative at the target date. For a 2008 buyer the 2025 and 2030 funds are 100% equity (50:25:25 mix of Canadian: US: International) and become 100% fixed income by the target date. Clarington has a similar guaranteed offering, while CIBC, RBC and Ethical Funds offers are without guaranteed. The fund charges 2.35% annually but has included a guarantee that if held to maturity it locks-in the highest daily value (which while attractive is not free in itself). You can read more about Target Date Funds at this site at Target Date Funds  and Target Date Funds II .
I haven’t talked in depth about behavioral finance which deserves (and will get) one or more dedicated blogs in itself. You can get a quick introduction to it in WSJ’s “Seven common mistakes with money”  . It is the study of how the emotionally charged poor judgment of humans affects their investment decisions. Examples include: mental accounting (paying 15-25% on your outstanding Visa bills while getting 2-4% on your saving account), playing it too safe because of loss aversion (keeping too much of assets in money market account and not enough in equities), and misunderstanding risk (putting/keeping too much of your assets in your employer’s stock).
Tom Lauricella in WSJs “Early retirement pitches can be too good”  shows how people in their eagerness to take early retirement often fall victim unrealistic pitches about possibility of 12-15% returns from unscrupulous brokers. By taking the commuted value of their otherwise lifetime pension, they not only fail to get the promised returns, but they also lose the longevity insurance component of the pension plan.
William Hanley of the Financial Post reminds us that the reported inflation may not be representative of our personal index in “How is your price index” . The basket of goods that you spend your money on in retirement may be significantly different than the one the CPI is based on and therefore your observed inflation is often significantly higher than the published one.
An important new bill being reviewed by the Canadian Senate which would extend protection in bankruptcy, already enjoyed by company sponsored pension plans and insurance based products, to RRSPs and RRIFs is reported by James Golombek in “RRSPs need bankruptcy protection”.
Let’s finish with a few interesting ETF related articles.
First in “When an ETF is not an ETF”  WSJ’s Shefali Anand explains some of the differences between ETFs (which are mutual funds holding stocks and have boards with a majority of independent directors) and ETNs (which are focused on commodities and currencies, not requiring independent directors and are intended to give investors the same returns as commodities/currencies less some fee, but instead of stock they invest in actual commodities or futures contracts, also these are not backed by collateral of underlying stocks but by the promise of the issuer like a debt instrument, there may also be some untested tax advantages for U.S. holders). So one could buy an ETF like Vanguard Energy ETF (VDE) which holds energy related company stocks or an ETN like Barclays’s iPath DJ/AIG Commodity Index Total Return ETN (DJP), which is about 1/3 energy, 1/3 agricultural, and 1/3 other (industrial metals, precious metals, etc)
In Barron’s “Sampling the ETF smorgasbord”  Ron Mazilli, head of EFT/CEF analysis recommends a little discrimination among the some 500 available ETFs. Specifically he suggests the use of IVV for S&P500 Index, VGK and VPL for European and Pacific exposure, EEM for Emerging Market space and XLE for the Energy Sector. He felt that the various new enhanced index products will occasionally underperform or overperform, but did not see any particular advantage to them.
And, Claymore’s introduction of two global balanced funds, CBD for income and CBN for growth, were reported in the Globe and Mail’s “Two new Claymore ETFs to take on fund ‘wraps’“  These wrap funds invest in other Claymore ETFs and of course add another layer of fees, about 10-15 extra basis points for the wrap, for a total of 0.7% annually. I imagine that it would not be very difficult for a do-it-yourselfer to save not just the extra wrap fees, but could as well use cheaper underlying ETFs to construct a similar effect.

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