blog01jun2008

Hot Off the Web- June 1, 2008
The past week’s highlight was covered in a couple of Financial Post articles “’High fees sap Canadians’ retirement savings: report”  by Alia McMullen and “Supplementary CPP for those without workplace pensions?” by Jon Chevreau. They discuss Keith Ambachtsheer’s latest C.D Howe Institute report entitled “The Canada Supplementary Pension Plan(CSPP)” . After Ambachtsheer shows how defined benefits pension plans are disappearing and Canadian’s retirement savings are being drained by mutual fund investment fees and how their investments are likely to underperform the market by at least 2% per year, he tables his template for the CSPP. His proposal is an extension of the current system collecting CPP/QPP contributions to collect additional funds (with option to opt out) to be invested in a manner compatible with current RRSP/TFSA tax-deferral mechanisms. The objective would be to secure 60% earning replacement in retirement, together with CPP/OAS. 100% of the investments would flow into a “risk-optimized” portfolio up to age 45 and after which 50% would flow into a deferred annuity. A great proposal! Perhaps it will help get some political focus on Canada’s pension system crisis! (You may also see my recommendations last year to the Ontario Expert Commission on Pensions.) It is also a call to action to all Canadians to start demanding the urgent and critical reforms needed by Canada’s crumbling pension “system”!
In “The truth behind Florida’s housing numbers”  Brett Arends of the WSJ, reports from personal experience on a recent Florida trip that it is impossible to figure out what the real estate “market” really is like, especially in the middle of a crash like now. He quotes this week’s Case-Schiller report  that Miami prices are 25% off their peak. (However if you look at the past 20 year price trend line, you’ll note that, while prices have receded to about 2005 levels, according to the trend line they should be closer to the 2003-2004 levels or another 15-20% lower). Arends points out that many real estate agents have actually shown him many properties 50% below their 2005 prices. His experience confirms not just the large price variability in the current market, but also the ongoing lack of transparency in the real estate market. (The current crash would be an ideal time for regulatory/legislative bodies to step in to establish suitable public disclosure and free access to market data- past sale prices and volume, inventories, bid-and-ask prices, etc. While property is not a commodity due to the large variety of parameters, the current lack of timely and adequate disclosure and easy access to data prevents buyers and sellers from obtaining a fair priced transactions. He thinks it’s a good time to buy (?) although his previous week’s article on the subject demonstrated the price to own is almost twice the price to rent in Florida.
Rob Carrick in Globe and Mail’s “Finding an advisor who will put you first”  reviews Dan Richards’s tips for identifying trustworthy advisors: (1) open treatment of compensation, (2) clear communication (no jargon), (3) thorough assessment of your personal situation, and (4) time for client (annual review, prompt reply to queries). (Also note that not all advisors have an n explicit fiduciary duty toward the client. It is preferable to have one who does.)
In a related article, CARP’s Dan Braneff reports that “Self-regulation a recipe for disaster” . He recalls how Canada’s ineffective regulatory system “broken beyond repair” has lead to series disasters (Atlantic Acceptance, Confed Life, Bre-X, recent ABCP). What he advocates is “a national regulator accompanied by state-of-the art enforcement.” (Sounds like a supporting voice for Finance Minister Flaherty’s efforts toward a national regulator.)
Barron’s conducted an interview “Profiting from global change” with Mohamed El-Erian (Pimco’s co-chief executive) about his latest book “When Markets Collide”. In the article they show his recommended asset mix for (American) long-term investors: 49% Equities (15% US, 15% other developed, 12% Emerging and 7% private), 14% Bonds (5% US, 9% international), 27% Real Assets (6% RE, 11% commodities, 5% inflation protected bonds, 5% infrastructure), 8% Special Opportunities, (2% Cash?).He expects that this will result in a long-term real return of 5-7% and standard deviation of 8-12%.
And finally, for those of us who have no clue on where we spend our money, in “Where does your money go? Find out”  WSJ’s Doug Sease suggests that you walk around everywhere with a simple 3×5 index card and write down everything you buy and how much you spent on it. One card per week and by the end of a month you’ll be quickly ably to find out where your money goes. When he did this the first time, it led him to a relatively painless way to increase his annual savings by $10,000!
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